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.
Highlights
Economic developments and their expected future tendencies have an important role in the decision-making process
This paper uses the method of creeping trends with harmonic weights to predict the quarterly sovereign Credit Default Swap (CDS) spreads for Hungary and Germany, with the smallest prediction error
If we look at the Hungarian and German forecasts, we can state that in both cases the precondition for a random set of points around the axis is fulfilled, which means the level of reliability is acceptable
Summary
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.
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