Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities

Oliveira, Maria Alberta; Santos, Carlos

Publication

Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities

2015Journal article

dc.contributor.author	Oliveira, Maria Alberta
dc.contributor.author	Santos, Carlos
dc.date.accessioned	2016-12-19T19:15:54Z
dc.date.available	2016-12-19T19:15:54Z
dc.date.issued	2015
dc.description.abstract	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.	pt_PT
dc.description.version	info:eu-repo/semantics/publishedVersion	pt_PT
dc.identifier.citation	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	pt_PT
dc.identifier.eid	84955438772
dc.identifier.eissn	1812-9358
dc.identifier.issn	1810-4967
dc.identifier.uri	http://hdl.handle.net/10400.14/21096
dc.language.iso	eng	pt_PT
dc.peerreviewed	yes	pt_PT
dc.publisher	Sumy Business Perspectives
dc.rights.uri	http://creativecommons.org/licenses/by/4.0/
dc.subject	Sovereign credit default swaps	pt_PT
dc.subject	Explosive roots	pt_PT
dc.subject	Financial regulation	pt_PT
dc.subject	Euro debt crisis	pt_PT
dc.subject	Momentum trading	pt_PT
dc.subject	Market exuberance	pt_PT
dc.title	Market exuberance in sovereign credit default swaps: assessing the EU regulatory framework and trading profit opportunities	pt_PT
dc.type	journal article
dspace.entity.type	Publication
oaire.citation.endPage	80
oaire.citation.issue	4
oaire.citation.startPage	70
oaire.citation.title	Investment Management and Financial Innovations
oaire.citation.volume	12
person.familyName	Oliveira
person.familyName	Santos
person.givenName	Maria Alberta
person.givenName	Carlos
person.identifier.ciencia-id	691E-C5C6-E471
person.identifier.ciencia-id	B21B-EE12-A3EC
person.identifier.orcid	0000-0003-2918-1354
person.identifier.orcid	0000-0002-5100-0794
person.identifier.rid	R-3064-2016
person.identifier.scopus-author-id	8636090500
person.identifier.scopus-author-id	55998214300
rcaap.rights	openAccess	pt_PT
rcaap.type	article	pt_PT
relation.isAuthorOfPublication	82201628-8131-475d-a130-274ca446cc17
relation.isAuthorOfPublication	ca088211-4560-4dc9-a5d4-a608554bc01c
relation.isAuthorOfPublication.latestForDiscovery	82201628-8131-475d-a130-274ca446cc17