Dependence Structures between Sovereign Credit Default Swaps and Global Risk Factors in BRICS Countries

This study investigates the tail dependence structures of sovereign credit default swaps (CDSs) and three global risk factors in BRICS countries using a copula approach, which is popular for capturing “true” based on “distribution-adjusted” joint marginals. The empirical results show that market sentiment comoves with CDS spreads across under extreme events such as pandemic-induced crash 2020, Brazil reporting highest bilateral convergence followed by China, Russia, South Africa. Furthermore, oil price volatility second biggest factor correlated Africa, while exchange rate exhibits very low co-dependence during downturns. On contrary, largest co-moving China Russia’s spreads, lowest these countries. Between currency risk, evidence single dominance found where largely dominant, policymakers could promulgate financial sector regulations mitigate spill-over risks targeted capital controls when markets are distressed.