Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities
Autor(a) principal: | |
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Data de Publicação: | 2015 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.14/21096 |
Resumo: | Sovereign credit default swaps (SCDSs) have been at the core of the Euro Area (EA) debt crisis, particularly in its periphery. Both EU politicians and a wide range of EU academics have asked for tighter regulation of these over-the-counter (OTC) derivatives, following similar pressures to the ones that had resulted from the 2008 financial crisis for corporate reference entities. As such, the SCDSs regulatory framework experienced a number of changes from 2009 to 2014, in the EU. This paper provides a seminal assessment on whether these new rules have succeeded in preventing SCDSs exuberance episodes in the EU. Using daily data for 5 years maturity Greek SCDSs, comprising the period between the latest regulatory reform, in September 2014, and mid-March 2015, we find clear evidence of explosive behavior in SCDSs spreads, and even in upfront quotes. The authors take advantage of the new Phillips et al. (2015a, 2015b) test for multiple exuberance episodes, which had rarely been used in derivatives markets, and conduct an event study to conclude that Greek elections, in early 2015, and the associated turmoil has led to a surge in momentum trading, with significant potential returns for SCDSs buyers. The regulatory measures aiming at deleveraging these markets, standardizing contracts, and dissociating sovereign and banking risk, do not seem to have achieved their purposes, as the political and financial anxiety in Greece, starting in December 2014, has led to explosive behavior episodes in the market for Greek SCDSs, of the type regulators had tried to avoid. |
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Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunitiesSovereign credit default swapsExplosive rootsFinancial regulationEuro debt crisisMomentum tradingMarket exuberanceSovereign credit default swaps (SCDSs) have been at the core of the Euro Area (EA) debt crisis, particularly in its periphery. Both EU politicians and a wide range of EU academics have asked for tighter regulation of these over-the-counter (OTC) derivatives, following similar pressures to the ones that had resulted from the 2008 financial crisis for corporate reference entities. As such, the SCDSs regulatory framework experienced a number of changes from 2009 to 2014, in the EU. This paper provides a seminal assessment on whether these new rules have succeeded in preventing SCDSs exuberance episodes in the EU. Using daily data for 5 years maturity Greek SCDSs, comprising the period between the latest regulatory reform, in September 2014, and mid-March 2015, we find clear evidence of explosive behavior in SCDSs spreads, and even in upfront quotes. The authors take advantage of the new Phillips et al. (2015a, 2015b) test for multiple exuberance episodes, which had rarely been used in derivatives markets, and conduct an event study to conclude that Greek elections, in early 2015, and the associated turmoil has led to a surge in momentum trading, with significant potential returns for SCDSs buyers. The regulatory measures aiming at deleveraging these markets, standardizing contracts, and dissociating sovereign and banking risk, do not seem to have achieved their purposes, as the political and financial anxiety in Greece, starting in December 2014, has led to explosive behavior episodes in the market for Greek SCDSs, of the type regulators had tried to avoid.Sumy Business PerspectivesVeritati - Repositório Institucional da Universidade Católica PortuguesaOliveira, Maria AlbertaSantos, Carlos2016-12-19T19:15:54Z20152015-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.14/21096engOLIVEIRA, Maria Alberta; SANTOS, Carlos - Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities. Investment Management and Financial Innovations. ISSN 1810-4967. Vol. 12, N.º 4, (2015), p. 70-801810-49671812-935884955438772info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-08-15T01:41:45Zoai:repositorio.ucp.pt:10400.14/21096Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:16:49.023181Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
title |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
spellingShingle |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities Oliveira, Maria Alberta Sovereign credit default swaps Explosive roots Financial regulation Euro debt crisis Momentum trading Market exuberance |
title_short |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
title_full |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
title_fullStr |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
title_full_unstemmed |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
title_sort |
Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities |
author |
Oliveira, Maria Alberta |
author_facet |
Oliveira, Maria Alberta Santos, Carlos |
author_role |
author |
author2 |
Santos, Carlos |
author2_role |
author |
dc.contributor.none.fl_str_mv |
Veritati - Repositório Institucional da Universidade Católica Portuguesa |
dc.contributor.author.fl_str_mv |
Oliveira, Maria Alberta Santos, Carlos |
dc.subject.por.fl_str_mv |
Sovereign credit default swaps Explosive roots Financial regulation Euro debt crisis Momentum trading Market exuberance |
topic |
Sovereign credit default swaps Explosive roots Financial regulation Euro debt crisis Momentum trading Market exuberance |
description |
Sovereign credit default swaps (SCDSs) have been at the core of the Euro Area (EA) debt crisis, particularly in its periphery. Both EU politicians and a wide range of EU academics have asked for tighter regulation of these over-the-counter (OTC) derivatives, following similar pressures to the ones that had resulted from the 2008 financial crisis for corporate reference entities. As such, the SCDSs regulatory framework experienced a number of changes from 2009 to 2014, in the EU. This paper provides a seminal assessment on whether these new rules have succeeded in preventing SCDSs exuberance episodes in the EU. Using daily data for 5 years maturity Greek SCDSs, comprising the period between the latest regulatory reform, in September 2014, and mid-March 2015, we find clear evidence of explosive behavior in SCDSs spreads, and even in upfront quotes. The authors take advantage of the new Phillips et al. (2015a, 2015b) test for multiple exuberance episodes, which had rarely been used in derivatives markets, and conduct an event study to conclude that Greek elections, in early 2015, and the associated turmoil has led to a surge in momentum trading, with significant potential returns for SCDSs buyers. The regulatory measures aiming at deleveraging these markets, standardizing contracts, and dissociating sovereign and banking risk, do not seem to have achieved their purposes, as the political and financial anxiety in Greece, starting in December 2014, has led to explosive behavior episodes in the market for Greek SCDSs, of the type regulators had tried to avoid. |
publishDate |
2015 |
dc.date.none.fl_str_mv |
2015 2015-01-01T00:00:00Z 2016-12-19T19:15:54Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.14/21096 |
url |
http://hdl.handle.net/10400.14/21096 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
OLIVEIRA, Maria Alberta; SANTOS, Carlos - Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities. Investment Management and Financial Innovations. ISSN 1810-4967. Vol. 12, N.º 4, (2015), p. 70-80 1810-4967 1812-9358 84955438772 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Sumy Business Perspectives |
publisher.none.fl_str_mv |
Sumy Business Perspectives |
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reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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