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Relationship between Lithuanian Sovereign Credit Risk and Equity Market

Business, Management and Education, 2015-12, Vol.13 (2), p.292-307 [Peer Reviewed Journal]

Copyright Vilnius Gediminas Technical University 2015 ;ISSN: 2029-7491 ;EISSN: 2029-6169 ;DOI: 10.3846/bme.2015.295

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  • Title:
    Relationship between Lithuanian Sovereign Credit Risk and Equity Market
  • Author: Abazoriute, Aiste ; Kregzde, Arvydas
  • Subjects: Analysis ; Capital markets ; CDS ; credit ; Credit default swaps ; Credit risk ; Default ; Economic theory ; Economy ; Equity ; Eurozone ; Institutional investments ; Interest rate swaps ; International trade ; OMX Vilniu ; risk ; Securities markets ; Sovereign debt ; spread ; Stock exchanges ; Stocks ; Studies
  • Is Part Of: Business, Management and Education, 2015-12, Vol.13 (2), p.292-307
  • Description: We analyse relationship between Lithuanian sovereign credit risk and equity market. The aim of the paper is to find the impact of the sovereign credit risk, which is expressed in the terms of Credit Default Swaps (CDS), on the movements of stocks prices of Lithuania. We use VAR (vector autoregression) model in order to find the relationship between Lithuanian CDS spread and OMX Vilnius index. We use impulse reaction method to investigate the impact of CDS spreads on the OMX Vilnius index. After analysis of equity index OMX Vilnius and Lithuanian CDS price relationship it was found out that there exists an opposite relationship between these two variables. When the CDS prices are rising, the equity prices decrease and vice versa. The main finding is that Lithuanian capital market returns reacts immediately to the changes of credit risk of Lithuania which is set by the global capital market and expressed by the CDS prices and Lithuanian capital market is under the great foreign pressure.
  • Publisher: Vilnius: Vilnius Gediminas Technical University
  • Language: English;Lithuanian
  • Identifier: ISSN: 2029-7491
    EISSN: 2029-6169
    DOI: 10.3846/bme.2015.295
  • Source: CEEOL: Open Access
    Alma/SFX Local Collection
    ROAD: Directory of Open Access Scholarly Resources
    DOAJ Directory of Open Access Journals
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