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Measuring Co-Movements Of CDS Premia During The Greek Debt Crisis

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Executive Summary

In this paper, the authors test whether the co-movement of sovereign CDS premia increased significantly after the Greek debt crisis started in October 2009. They perform a bivariate test for contagion that is based on an approach proposed by Forbes and Rigobon (2002). Their sample consists of daily data between October 2008 and July 2010 for 39 countries including both emerging and industrialized countries. Their results indicate that there were periods of contagion for CDS markets during the Greek debt crisis, which is in contrast to the results from Forbes and Rigobon (2002) for equity markets after the Hong Kong crash and their conclusion of "No contagion, only interdependence".

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