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Risk Spillovers in Oil-Related CDS, Stock and Credit Markets

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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 [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 12, 2011, ] (Unpublished)

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Official URL: http://eprints.ucm.es/12627/


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Abstract

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
Additional Information:

For financial support, the third author wishes to thank the National Science Council, Taiwan, and the fourth author wishes to thank the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.

Uncontrolled Keywords:Risk, Sectoral CDS, VIX, SMOVE, MOVE, Adjustments.
Subjects:Social sciences > Economics > Econometrics
JEL:C13, C22, G1, G12, Q40
Series Name:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2011
Number:12
ID Code:12627
Deposited On:29 Apr 2011 10:25
Last Modified:17 Jun 2016 08:35

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