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

Round 1

Reviewer 1 Report

The paper is well written and presentsd and the results  are interesting.

Author Response

Please see the attachment

Author Response File: Author Response.docx

Reviewer 2 Report

The authors provide an interesting study about the dependence structure between Sovereign CDS and global risk factors in BRICS countries.

The introduction provides a useful discussion about research in the area.

An introduction of major copulas is provided, and authors provide ‘the best-fit’ copula based on AIC criterion.

Their findings indicate a different type of copula that is useful for the Brazilian market than for the other three markets (Russia, China, S.Africa).

The data are extended and sufficient.

However, the study needs to be more transparent about two things.

First, the introduction should be rewritten to emphasize the study's contribution and its implications for the market.

Second, the findings should be compared to these of other studies that examine copulas in these markets.

Third, the authors should provide the reported AIC and BIC (the latter criterion is major criterion used in copula evaluation according to Bauwens et al (2012) and Hasebe, T. (2013)) for the different types of copulas before selecting the ‘best-fitted one.

Authors should amend their study on these points before the study is accepted for publication.

----

References

Bauwens, L., Hafner, C. M., & Laurent, S. (2012). Handbook of volatility models and their applications (Vol. 3). John Wiley & Sons.

Hasebe, T. (2013). Copula-based maximum-likelihood estimation of sample-selection models. The Stata Journal, 13(3), 547-573.

Author Response

Please see the attachment

Author Response File: Author Response.docx

Reviewer 3 Report

The authors of the research paper “Dependence Structures between Sovereign Credit Default Swaps and Global Risk Factors in BRICS Countries” presented a topic very relevant and suitable to financial systems and banking institutions.

The research questions are valid. The methods and study design are appropriate for answering the research question. The study is overall presented and described in terms of contents. Some minor items:  Table A. “Descriptive Statistics” and Table B. “Spearman correlation of sovereign CDSs and risk factors” require a much more detailed explanation.

I do suggest to say something structural dependence in the system extends to the interaction between the volatility of the bank’s default risk and the volatility of the sovereign default risk. Therefore, should be considered it necessary to include other factors in future research, such as: the interaction between the bank and sovereign default risk. Also, Global economic growth is noted to have been severely affected by the Great Recession in 2009, reaching its lowest level since the series began in 2019. This low was exceeded in 2020, due to countries’ efforts to stop the COVID-19 pandemic. Also, something should be said about the impact on it as a result of the overall pandemic recovery funds.

The weakest part of the paper is the lack of recent literature focus on VAR, GARCH in this paper and a lot of research has been done about it. I do suggest to the authors that the literature review should be reinforced and related to the main goal of the paper. They should additionally contribute to the existing literature by examining not only a mean but also a volatility return transmission within the VAR-GARCH.

Let me suggest some very recently references widely cited on this topic to help you:

Lovreta, L., López Pascual, J. “Structural breaks in the interaction between bank and sovereign default risk”. SERIEs (2020). https://0-doi-org.brum.beds.ac.uk/10.1007/s13209-020-00219-z. that could be included on your paper.

Wang, Z.; Zhao, Q.; Zhu, M.; Pang, T. Jump Aggregation, Volatility Prediction, and Nonlinear Estimation of Banks’ Sustainability Risk. Sustainability 2020, 12, 8849. https://0-doi-org.brum.beds.ac.uk/10.3390/su12218849.

Also, other references to consider:

Hansen PR, Lunde A (2005) A forecast comparison of volatility models: does anything beat a GARCH (1,1)? J Appl Econ 20(7):873–889.

Iuga, I.C.; Mihalciuc, A. Major Crises of the XXIst Century and Impact on Economic Growth. Sustainability 2020, 12, 9373. https://0-doi-org.brum.beds.ac.uk/10.3390/su12229373. :

Finally, Conclusions and originality of the paper should be highlighted and I would strongly recommend to the authors including them also some limitations to this study. Besides, I would like to see a much more detailed information about future research.

Therefore, I suggest to the authors those minor revisions of the work.

Author Response

Please see the attachment

Author Response File: Author Response.docx