Abstract
Given the recent collapse of oil prices, this study investigates the directional predictability from the oil market uncertainty to the sovereign credit default swap (CDS) spreads of four oil-exporting GCC countries (Bahrain, Qatar, Saudi Arabia and United Arab Emirates) and five other oil-exporting countries (Brazil, Mexico, Norway, Russia and Venezuela). Using the modified bootstrap-rolling window approach, the empirical results reveal a significant directional predictability from oil uncertainty to the CDS spreads of most of those oil-exporting countries during the subperiods 2010-2011 and 2014-2015 (that is, during the periods when oil volatility follows a rising trend). The most significant directional predictability is found for Qatar, Bahrain, Saudi Arabia, and Norway, particularly during the 2014-2015 oil price collapse subperiod, whereas there is no directional predictability found in the case of Brazil. For Mexico, the oil market uncertainty predicts CDS spreads mostly during 2014, and for Venezuela, the directional predictability flows are highly impactful and concentrated during 2011-13. To check the robustness of our estimations, we use a novel quantile dependence measure called the crossquantilogram that was developed by Han et al. (2016). The estimation results of this approach confirm our main findings and indicate that the surge in oil volatility predicts the CDS spreads in different quantiles. Overall, the findings highlight that the sovereign credit risk of the GCC and the other oil-exporting countries is at least partially driven or directionally predicted by the oil volatility shocks. This has important implications for investment and policy decisions. (C) 2017 Elsevier B.V. All rights reserved.