Abstract
This paper investigates the dynamic and nonlinear impact of oil price returns on the sovereign credit default swap (CDS) spreads for the oil-rich countries of the Gulf Cooperation Council (GCC) and other important oil-exporting countries, namely Venezuela, Mexico and Russia. We employ the standard quantile regression analysis, the rolling quantile regression, and finally, the Quantile-on-quantile (QQ) approach that allows one to investigate the dependence dynamics of the sovereign CDS spreads under different credit market conditions. The empirical results show that oil price returns significantly and favorably decrease the sovereign credit risk premium of the non-GCC oil-exporting countries under consideration. However, the results also suggest no or little impact on the sovereign credit risk premium of Saudi Arabia, UAE and Norway, which have the most significant sovereign wealth funds in the world. The negative (i.e. favorable) impact of oil price returns on the sovereign CDS spreads, where present, gradually increases with the quantile level and is the highest during the bullish credit market conditions. The results also show that those CDS spreads are more sensitive to the global bond market uncertainty factor than to the global equity market uncertainty factor. (C) 2020 Elsevier B.V. All rights reserved.