Abstract

http://ssrn.com/abstract=1734712
 
 

References (71)



 


 



Empirical Tests on the Credit Default Swap and Stock Markets During the Global Credit Crisis


Kam Fong Chan


University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Alastair Marsden


University of Auckland - Faculty of Business & Economics

December 31, 2010


Abstract:     
This study investigates the time-series dynamics governing the credit default swap indices (CDX), and volatility spillover between the stock and CDX markets. We use daily returns data on an equally weighted NYSE-AMEX-NASDAQ daily stock index, the CDX investment-grade index (CDXIG) and the CDX high-yield index (CDXHG) over the period between January 2006 and December 2009. Our empirical evidence suggests the presence of two components – (i) diffusive stochastic volatility; and (ii) jumps in returns and volatility – in both the stock and CDX markets. Furthermore, our results show that the contemporaneous correlation between the stochastic volatilities of the stock and CDXIG markets decreased during the recent global credit crisis, suggesting greater diversification benefits between the stock and investment-grade CDX markets in periods of financial downturn. We also find evidence of bi-directional Granger-causality between the stochastic volatilities of the stock and CDX markets during the global credit crisis.

Number of Pages in PDF File: 55

Keywords: Credit default swap, Stochastic Volatility, Jump-diffusion, Volatility Spillover, MCMC

JEL Classification: C11, C15, G01, G1, G12

working papers series


Download This Paper

Date posted: January 6, 2011  

Suggested Citation

Chan, Kam Fong and Marsden, Alastair, Empirical Tests on the Credit Default Swap and Stock Markets During the Global Credit Crisis (December 31, 2010). Available at SSRN: http://ssrn.com/abstract=1734712 or http://dx.doi.org/10.2139/ssrn.1734712

Contact Information

Kam Fong Chan (Contact Author)
University of Queensland - Faculty of Business, Economics and Law ( email )
4072 Brisbane, Queensland
Australia
Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Alastair D.E. Marsden
University of Auckland - Faculty of Business & Economics ( email )
Private Bag 92019
Room: C208
Auckland
New Zealand
64 9 373 7999 (Phone)
64 9 373 7406 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 1,116
Downloads: 140
Download Rank: 120,249
References:  71

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.297 seconds