Presentation and Testing of the Creeping Trend with Harmonic Weights Method in the Light of Sovereign CDS Prices

Authors

  • Renáta Géczi-Papp University of Miskolc

DOI:

https://doi.org/10.18096/TMP.2018.02.03

Keywords:

Credit Default Swap, forecast, creeping trend with harmonic weights, sovereign CDS

Abstract

The prediction of financial indicators is not easy, as the influencing factors may change from time to time. The sovereign credit default swap (CDS) spread is a complex measure which helps evaluate country risk, and there are a number of quantitative and qualitative criteria that may have an impact on the price development. The study aims to present and test a relatively new method. Forecasting based on the creeping trend with harmonic weights allows us to manage independent variables that are not constant in time. The study presents the method and illustrates its effectiveness through an empirical example, using the Hungarian and German five-year USD denominated quarterly CDS spreads.

Author Biography

Renáta Géczi-Papp, University of Miskolc

Assistant Lecturer

References

AIZENMAN, J., HUTCHISON, M., & JINJARAK, Y. (2013): What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk. Journal of International Money and Finance, Vol. 34, pp. 37-59. http://dx.doi.org/10.1016/j.jimonfin.2012.11.011

AUE, A. & HORVÁTH, L. (2012): Structural breaks in time series. Journal of Time Series Analysis, Vol 34. Issue 1. pp. 1-16 https://doi.org/10.1111/j.1467-9892.2012.00819.x

BESENYEI, L. & DOMÁN, CS. (2010): Time Series Modes of Business Prognostics. Nemzeti Tankönyvkiadó. Chapter 3.4. The Method of Harmonic Sub-trends. Download from: https://www.tankonyvtar.hu/en/tartalom/tamop425/0049_09_time_series_modes_of_business_prognostics/6415/index.html, 2018.04.20.

DIECKMANN, S., PLANK, T. (2012): Default Risk of Advanced Economies: An Empirical Analysis of Credit Default Swaps during the Financial Crisis. Review of Finance, 16, pp. 903–934. https://doi.org/10.1093/rof/rfr015

DUFFIE, D., PEDERSEN, L.H., SINGLETON, K.J. (2003): Modeling Sovereign Yield Spreads: A Case Study of Russian Debt. The Journal of Finance, Vol. 58, No. 1, pp.119-159. https://doi.org/10.1111/1540-6261.00520

FONTANA, A., SCHEICHER, M. (2010): An analysis of euro area sovereign CDS and their relation with government bonds. European Central Bank Working Paper Series, 1271, December. pp. 1-47. https://doi.org/10.2139/ssrn.1715483

HEGEDŰSNÉ BARANYAI, N. (2007): Agrárgazdasági folyamatok vizsgálata idősor-modellek alkalmazásával (Analysis of agro-economic processes using time series models). PhD dissertation, University of Pannonia, Georgikon Faculty, Keszthely, pp. 24-29.

IMF data, Downloaded from: http://data.imf.org/?sk=388DFA60-1D26-4ADE-B505-A05A558D9A42, 2017.07.15.

LONGSTAFF, F.A., PAN, J., PEDERSEN, L.H., SINGLETON, K.J. (2011): How Sovereign Is Sovereign Credit Risk? American Economic Journal: Macroeconomics, 3.2, pp. 75-103. https://doi.org/10.1257/mac.3.2.75

PESARAN, M. H., PETTENUZZO, D. & TIMMERMANN, A. (2006): Forecasting Time Series Subject to Multiple Structural Breaks. Review of Economic Studies, Vol. 73, Issue 4, pp. 1057-1084. https://doi.org/10.1111/j.1467-937x.2006.00408.x

REMOLONA, E.M., SCATIGNA, M., WU, E. (2008): The Dynamic Pricing of Sovereign Risk in Emerging Markets Fundamentals and Risk Aversion. The Journal of Fixed Income, Vol 17., No. 4., pp. 57.71. https://doi.org/10.3905/jfi.2008.705542

SZILÁGYI, R., VARGA, B., GÉCZI-PAPP, R. (2016): Árelőrejelzés módszertani lehetőségei (Methodological possibilities for price forecasting). In: Bodzás Sándor (szerk.), Műszaki tudomány az Észak-Kelet Magyarországi régióban 2016. pp. 631-639. https://doi.org/10.26649/musci.2016.135

VARGA, L. (2008): A magyar szuverén CDS-szpredek információtartalma (Information content of Hungarian sovereign CDS spreads). Magyar Nemzeti Bank. MNB-Tanulmányok 78., 2008. november. pp.1-28.

WALLSTRÖM, P. (2009): evaluation of forecasting techniques and forecast errors, with focus on intermittent demand. Luleå University of Technology, Printed by Universitetstryckeriet, Luleå, Download from: https://www.divaportal.org/smash/get/diva2:990519/FULLTEXT01.pdf, 2018.08.18.

WOOLDRIDGE, J.M. (2016): Introductory Econometrics: A Modern Approach, Sixth Edition. Cengage Learning, Chapter 2.2.-2.5.

Downloads

Published

2018-12-15

How to Cite

Géczi-Papp, R. (2018). Presentation and Testing of the Creeping Trend with Harmonic Weights Method in the Light of Sovereign CDS Prices. Theory, Methodology, Practice – Review of Business and Management, 14(02), 25–37. https://doi.org/10.18096/TMP.2018.02.03