How do sovereign credit default swap spreads behave under extreme oil price movements? Evidence from G7 and BRICS countries

Based on the GARCHCopula-CoVaR model, this paper explores the behavior of sovereign CDS spreads under extreme oil price movements by taking G7 and BRICS countries as examples. We reveal that the upside/downside CoVaR values of sovereign CDS spreads differ significantly from VaR values among all countries. This phenomenon illustrates that extreme oil returns are vital risks for both emerging and developed markets. Moreover, the impact of extreme oil returns on oil importers differs depending on the economic stability of each country, which is reflected in the heterogeneity of the spillover intensity.