Sovereign Credit Default Swap Market Volatility in BRICS Countries Before and During the COVID-19 Pandemic

Authors

  • Letife Özdemir Afyon Kocatepe University
  • Simon Grima University of Malta
  • Ercan Özen University of Usak
  • Ramona Rupeika-Apoga Faculty of Business, Management and Economics, University of Latvia
  • Inna Romanova Faculty of Business, Management and Economics, University of Latvia

DOI:

https://doi.org/10.47743/saeb-2024-0005

Keywords:

SCDS, E-GARCH, Volatility, BRICS, COVID-19

Abstract

SCDS (Sovereign Credit Default Swaps) are becoming more widely used as a country risk indicator after 2008 and stand out for providing real-time information rather than periodic reporting. The COVID-19 pandemic has led to economic disruptions and a decline in international trade. Understanding how the Pandemic affects SCDS return volatility in emerging economies like BRICS forms the motivation for our research. With this study, we aim to determine the impact of the COVID-19 Pandemic on SCDS return volatility in Brazil, Russia, India, China and South Africa, known as the BRICS countries. We used the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model to analyze the data, which consisted of the daily closing price data for SCDS. The date of the first COVID-19 case in each country has been taken as the beginning of the COVID-19 Pandemic in each country. The results of the estimated GARCH models show that the volatility processes of the SCDS return series differ between periods. EGARCH model results indicate that shocks created by news in these countries during the Pandemic have a small and persistent effect on Brazil and Russia's SCDS return volatility, while they have a large and enduring effect on China and South Africa's SCDS return volatility. The findings will guide policymakers and portfolio managers in determining risk management models.

Author Biographies

Letife Özdemir, Afyon Kocatepe University

 

 

 

Simon Grima, University of Malta

 

 

Ercan Özen, University of Usak

 

 

Ramona Rupeika-Apoga, Faculty of Business, Management and Economics, University of Latvia

 

 

Inna Romanova, Faculty of Business, Management and Economics, University of Latvia

 

 

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Published

2024-03-12

How to Cite

Özdemir, L. ., Grima, S., Özen, E., Rupeika-Apoga, R., & Romanova, I. (2024). Sovereign Credit Default Swap Market Volatility in BRICS Countries Before and During the COVID-19 Pandemic. Scientific Annals of Economics and Business, 71(1), 21–42. https://doi.org/10.47743/saeb-2024-0005

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