Abstract
This paper looks into credit risk markets for Emerging economies. It analyzes the relation between credit default swap (CDS) and bond spreads in the post Lehman Brothers period by focusing on both short and long run relations. Equity and cost of funding are also considered in the study. On the one hand, the CDS market is able to forecast the bond market in 11 cases out of 15, while equity is a useful predictor of the CDS market in 8 cases out of 15. Evidence of a bidirectional relation holds for Asian countries. On the other, the CDS market moves ahead of the bond market and is the leader in terms of price discovery of credit risk. Adding equity and cost of funding to our VECM does improve the number of cases where cointegration holds, but does not change the price discovery results.
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