Abstract

A country’s economic stability and growth is linked to its credit worthiness and the related terms of public and private sector finance.  To this end, credit default swap (CDS) spreads affect greatly this process.  This paper investigates the association of rising CDS spreads with economic and market factors as well as with credit rating announcements in the short run, for the Greek economy, by examining the evidence for the September 2008 - October 2010 period. The empirical results are interesting since they provide an indication that CDSs are more associated with market factors than with economic factors or credit rating announcements. The latter account for a lesser extent than the one believed. CDS spreads are associated with information already spread to the capital markets, and not vice versa, lessening the critique on rating agencies for rising CDS spreads. These findings are generally in line with those in other markets.

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