THE ASYMMETRIC LINKAGES BETWEEN SOVEREIGN CDS SPREADS AND STOCK MARKET INDICES IN THE PERIOD COVERING THE COVID-19 PANDEMIC: EVIDENCE FROM THE BRIC COUNTRIES

Abstract

This paper analyses the asymmetric linkages between the credit default swap (CDS) spreads and stock market indices for the BRIC countries which include Brazil, Russia, India, and China for the period of 2013:12-2021:03. We use the data of Bovespa, Moex, Shanghai, and Sensex stock market indices and CDS spreads obtained from the Bloomberg terminal. In our analysis, we employ the Hatemi-J (2012) asymmetric causality test which considers positive and negative shocks might have different causal effects between variables. Our findings support the evidence of causality relationships between CDS spreads and stock market indices for the BRIC countries in the relevant period suggesting that the CDS spreads can be used for anticipating the movements in stock market indices. Furthermore, we obtain meaningful results for particularly Russia and Brazil. Accordingly, we notice that the increases in CDS spreads lead to negative changes in stock market indices for Russia, and decreases in CDS spreads lead to positive changes in stock market indices for Brazil.