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Sovereign CDS and mutual funds: global evidence

journal contribution
posted on 11.05.2021, 08:01 by Bader Alsubaiei, Giovanni CaliceGiovanni Calice, Andrew VivianAndrew Vivian
In this paper, we study the impact of sovereign CDS on equity mutual funds across 24 developed and emerging market countries. Our investigation builds on the premise that mutual funds flow and performance respond negatively to increased default risk as measured via sovereign CDS entities. As predicted by our theory, we find that i) sovereign CDS spreads are indeed associated with decreased mutual funds return performance and ii) sovereign CDS spreads covary negatively with subsequent fund flow. This is consistent with investors being sensitive to the pricing information conveyed by the sovereign CDS market. Finally, we find that the impact of sovereign CDS spreads on mutual funds’ performance and flow is more pronounced among emerging market countries. Overall, these findings imply that mutual funds players could make extensive use of the information arising from CDS trading activity. In explaining these results, we emphasize the important implications for investors in mutual funds’ assets portfolios and for country-specific equity funds.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of International Financial Markets, Institutions and Money

Volume

73

Publisher

Elsevier

Version

AM (Accepted Manuscript)

Rights holder

© Elsevier

Publisher statement

This paper was accepted for publication in the journal Journal of International Financial Markets, Institutions and Money and the definitive published version is available at https://doi.org/10.1016/j.intfin.2021.101354.

Acceptance date

09/05/2021

Publication date

2021-05-13

Copyright date

2021

ISSN

1042-4431

Language

en

Depositor

Prof Andrew Vivian. Deposit date: 10 May 2021; Dr Giovanni Calice. Deposit date: 12 May 2021

Article number

101354

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Categories

Exports