Hammoudeh, Shawkat and Liu, Tengdong and Chang, Chia-Lin and McAleer, Michael (2011) Risk Spillovers in Oil-Related CDS, Stock and Credit Markets. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 12, 2011, ] (Unpublished)
Available under License Creative Commons Attribution Non-commercial.
Official URL: http://eprints.ucm.es/12627/
This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004-2011 period and the 2009-2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007-2008 Great Recession seems to have led to “localization” and less migration of credit and market risk in the oil-related sectors.
|Item Type:||Working Paper or Technical Report|
JEL: C13, C22, G1, G12, Q40.
|Uncontrolled Keywords:||Risk, Sectoral CDS, VIX, SMOVE, MOVE, Adjustments.|
|Subjects:||Social sciences > Economics > Econometrics|
|Series Name:||Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)|
Abid, F. and Naifar, N. 2006. Credit-default swap rates and equity volatility: A nonlinear relationship, Journal of Risk Finance 7, 348-371.
Acharya, V.V. and Johnson, T.C. 2007. Insider trading in credit derivatives. Journal of Financial Economics 84, 110-141.
Becker, R. Clements, A. E. and McClelland, A. 2009. The jump component of S&P 500 volatility and the VIX index. Journal of Banking and Finance 33 (6), 1033-1038.
Berndt, A., Douglas, R., Duffie, D., Ferguson, M. and Schranz, D. 2008. Measuring default risk premium from default swap rates and EDFs. BIS Working Paper No. 173.
EFA 2004 Maastricht Meetings Paper No. 5121.
Bharath, S. and Shumway, T. 2008. Forecasting default with the KMV-Merton model. Journal of Financial Studies 21, 1339-1369.
Blanco, R., Brennan, S., and Marsh, I.W. 2005. An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps. Journal of Finance 60, 2255–2281.
Bystrom, H. 2006. Credit default swaps and equity prices: The iTraxx CDS index market. Financial Analysts Journal 62, 65-76.
Chan, K. 1993. Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model. Annals of Statistics 21, 520-533.
Das, S.R. and Hanouna, P. 2006. Credit default swap spreads. Journal of Investment Management 4, 93-105.
Dickey, D.A. and Fuller, W.A. 1979. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Society 75, 427-431.
Duffie, D. and Singleton, K.J. 1999. Modeling term structures of defaultable bonds. The Review of Financial Studies 12, 687-720.
Emmons, W. and Schmid, F. 2004. Monetary policy actions and the incentive to invest. Business Economics 39(2), 24-29 Also available as Working Paper 2004-018A, Federal Reserve Bank of St. Louis, St. Louis, MO.
Engle, R. and Granger, C. 1987. Cointegration and error-correction representation, estimation and testing. Econometrica 55, 251-2.
Ericsson, J., Jacobs, K., and Oviedo-Helfenberger, R. 2009. The determinants of credit default swap premia. Journal of Financial and Quantitative Analysis 44, 109-132.
Ericsson, J., Reneby, J., and Wang, H. 2006. Can structural models price default risk? Evidence from bond and credit derivative markets.” Working Paper, McGill University. http://w4.stern.nyu.edu/salomon/docs/Credit2006/EricssonRenebyWang.pdf.
Fernandes, M., Medeiros, M.C. and Scharth, M. 2009. Modeling and predicting the CBOE market volatility index. http://webspace.qmul.ac.uk/mfernandes/Papers/Vix.pdf.
Figuerola-Ferretti, I. and Paraskevopoulos, I. 2010. Pairing market with credit risk. Available at SSRN: http://ssrn.com/abstract=1553863.
Forte, S. and Lovreta, L. 2008. Credit risk discovery in the stock and CDS markets: Who, when and why leads.
Forte, S. and Peña, J.I. 2009. Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS. Journal of Banking and Finance 33, 2013-2025
Fung, H.G., Sierra, G.E., Yau, J., and Zhang, G. 2008. Are the U.S. stock market and credit default swap market related? Evidence from the CDX Indices Journal of Alternative Investments 11, 43-61.
Greatrex, C. 2008. The credit default swap market‟s determinants, efficiency and relationship to the stock market. ETD Collection for Fordham University. Paper AAI3301438. http://fordham.bepress.com/dissertations/AAI3301438.
Johansen, S. 1988. Statistical analysis of cointegrating vectors. Journal of Economic Dynamics and Control. 12, 231-254.
Johansen, S. and Juselius, K. 1990. Maximum likelihood estimation and inferences on cointegration-with application to demand for money. Oxford Bulletin of Economics and Statistics 52, 169-210.
Koop, G., Pesaran, M. and Potter, S,M. 1996. Impulse response analysis in nonlinear multivariate models. Journal of Econometrics 74, 119-147.
Kucuk, U.N. 2010. Non-default component of sovereign emerging market yield spreads and its determinants: Evidence from credit default swap market. Journal of Fixed Income. [???].
Longstaff, F., Mithal, S., and Neis, E. 2005. Corporate yield spreads: default Risk or liquidity? New evidence from the credit default swaps market. Journal of Finance 60, 2213-2253.
Luo, X. and Zhang, J.E. 2010. The term structure of VIX. http://hdl.handle.net/10722/127838.
Miller, M., Weller, P., and Zhang, L. 2002. Moral hazard and the US stock market: Analyzing the „Greenspan Put‟. Economic Journal 112 (478), C171-C186.
Ng, S. and Perron, P. 1995. Unit root tests in ARMA models with data dependent methods for truncation lag. Journal of the American Statistical Association, 429, 268-281.
Norden, L. and Weber, M. 2009. The co-movement of credit default swap, bond and stock markets: An empirical analysis. European Financial Management 15, 529-562.
Norden, L and Weber, M. 2004. Informational efficiency of credit default swaps and stock market. Journal of Banking and Finance 28, 2813-2843. Also available as Discussion Paper DP 4250, Center for Economic Policy Research. London, United Kingdom. www.cepr.org/pubs/dps/DP4250.asp.
Pesaran, H. and Shin, Y. 1998. Generalized impulse response analysis in linear multivariate models. Economics Letters 58, 17-29.
Phillips, P.C.B. and Perron, P. 1988. Testing for a unit root in time series regressions. Biometrica 75, 335-346. Raunig, B. and Scheicher, M. 2009. Are the banks different? Evidence from CDS market. BIS https://www.bis.org/bcbs/events/cbrworkshop09/raunigscheicher.pdf.
Urbain, J.P. 1992. On weak exogeneity in error-correction models. Oxford Bulletin of Economics and Statistics 54 (2), 187-207. Wingfield, B. 2010. The end of the Great Recession? Hardly. Business in the Beltway. http://blogs.forbes.com/brianwingfield/2010/09/20/the-end-of-the-great-recession-hardly/?boxes=businesschannelsections.
Zhang, B., Zhou H. and Zhu, H. 2009. Explaining credit default swap spreads with the equity volatility and jump risks of individual firms. Review of Financial Studies, 22(12) 5099-5131.
Zhu, H. 2006. An empirical comparison of credit spreads between the bond market and the credit default swap market. Journal of Financial Services Research 29, 211-235.
|Deposited On:||29 Apr 2011 10:25|
|Last Modified:||12 Mar 2014 10:57|
Repository Staff Only: item control page