The Role of CDS Market in the Price Discovery Process of the “PIIGS” Countries Sovereign Credit Risk During the Recent Decade of Monetary Easing

Abstract The aim of this paper is to analyze the long-lasting dynamic relationship between credit default swap (CDS) premia and government bond spreads (GBS), with regard sovereign risk. practical focus evaluate whether CDS market effectively leading or lagging in risk price discovery process during last decade monetary easing. analysis extends all “sensitive” countries Eurozone, so-called “PIIGS” (excluded Greece) for interval 2007-2017. JEL classification numbers: G01, G12, G14, G20. Keywords: spread, Government Sovereign risk, Cointegration, Vector error correction model, Granger-causality.