The dynamic relationship between the bond and CDS markets of emerging countries: copula-GARCH

This paper examines the interaction between sovereign bond credit spreads (BS) and credit default swap (CDS) premiums. We use ARDL models to test whether there is a long-run equilibrium relationship between the variables, using daily data for the period October 2008 to November 2016 for 22 emerging market countries. To analyse the validity of the results of the Granger causality test, a test of the static copula model was applied to measure the interdependence of the variables. The empirical literature on copula and their use in financial dependence is extensive (see Joe et al., 2012), and they provide a new, alternative measurement technique.