Exchange rates, credit default swaps and market volatility of emerging markets: Panel CS-ARDL approach

Alan T. Wang, Chin Chia Liang

Research output: Contribution to journalArticlepeer-review

Abstract

Using the panel-data approach with a sample of emerging countries, this study examines the relationship between exchange-rate movements from 2011 to 2022, on the one hand, and sovereign debt credit default swap (CDS) premiums and market volatility, on the other. To capture the short- and long-run relationships between exchange rates, sovereign CDS, and market volatility, our study applies the cross-section augmented autoregressive distributed lag (CS-ARDL) model by Chudik and Pesaran (2015) with the pooled mean group (PMG) estimation method. The advantages of this setting are that it allows for cross-sectional heterogeneity and dependence. The exchange rate and the sovereign CDS premium are integrated in the long run. The exchange-rate dynamics, the return on CDS, and market volatility are contemporaneously correlated. Furthermore, market volatility and the deviation from the long-run relationship between the exchange rate and CDS also provide predictive information for exchange-rate movements in the next period. These findings shed further light on the forward-premium puzzle.

Original languageEnglish
Pages (from-to)176-186
Number of pages11
JournalBorsa Istanbul Review
Volume24
Issue number1
DOIs
Publication statusPublished - 2024 Jan

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Exchange rates, credit default swaps and market volatility of emerging markets: Panel CS-ARDL approach'. Together they form a unique fingerprint.

Cite this