• ISSN: 2010-023X
    • Frequency: Bimonthly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Executive Editor: Ms. Cherry L. Chen
    • Abstracting/ Indexing: Engineering & Technology Digital Library, ProQuest, Crossref, Electronic Journals Library , EBSCO, and Ulrich's Periodicals Directory
    • E-mail: ijtef@ejournal.net
IJTEF 2015 Vol.6(2): 134-139 ISSN: 2010-023X
DOI: 10.7763/IJTEF.2015.V6.457

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

Samuel Kwabena Ofori
Abstract—The paper analyses the determinants of the Japanese sovereign credit default swap spreads for the period 2004-2014 in a Markov regime switching framework. The paper employs a mix of both global and local factors in our analyses. The analyses reveal that, in both volatile and normal regimes, the global variables; the Implied volatility on the CBOE Index and the World interest rate variable proxied by the 10 year US treasury yields are highly significant. However, the default risk of the US is only significant in the normal regime. The local factors; the 10 year Japanese Government bond yield, the Leading index of the Composite Index of Japan and the Total Return on the Nikkei225 Index exhibit high degrees of significance in the volatile regime with the exception of the terms of trade variable. Only the Total Returns on the Nikkei 225 remain significant in the normal regime. Consistent with earlier studies, the impact and size of the variables are more pronounced in the volatile regime than the normal regime. These results not only emphasize the importance of nonlinear models in finance but also shed light on the factors influencing Japanese CDS spreads. The results are useful for researchers’ and practitioners alike.

Index Terms—Japanese derivatives market, Markov switching models, non-linear models, sovereign credit default swaps.

The author is with the Department of Social Systems and Management, University of Tsukuba, Japan (e-mail: sammyoforiucc@yahoo.com).

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Cite: Samuel Kwabena Ofori, "Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads," International Journal of Trade, Economics and Finance vol.6, no.2, pp. 134-139, 2015.

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