Download or read book Modeling European Sovereign CDS Spreads written by Oliver Masetti and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a comprehensive analysis of the developments of euro area sovereign Credit Default Swap (CDS) spreads since the onset of the financial crisis in 2008. Emphasis is given to explaining the general rise of CDS spreads and their dispersion between countries. The study identifies Credit Risk, Risk Aversion and Liquidity Risk as the main determinants of sovereign CDS spreads. The observed co-movement of CDS spreads can be traced back mainly to shifts in global risk aversion. Country-specific risk and liquidity factors turn out to be important in explaining the increased dispersion between European sovereign spreads. This paper finds that differentials in CDS spreads are further caused by an unequal sensibility to risk aversion across countries and interaction effects between risk aversion and macro-economic variables.