Credit Default Swaps and Stock Prices: Further Evidence within and Across Markets from Mean and Volatility Transmission with a MVGARCH-M Model and Newer Data

27 Pages Posted: 19 Jan 2009

See all articles by Andreas Lake

Andreas Lake

Eurobank-Ergasias EFG

Nicholas Apergis

University of Piraeus; University of Derby

Date Written: January 19, 2009

Abstract

The goal of this paper is to investigate empirically the association between the stock market and the credit default swap (CDS) market in terms of mean as well as volatility spillovers. Making use of 1612 daily observations from four stock markets, i.e., US, German, UK and Greek markets, as well as from two European CDS indices along with the methodology of the error correction (EC) and the multivariable generalized heteroskedasticity in mean (MVGARCH-M) modelling, the empirical findings yield: stock returns across European and US markets are negatively related to European CDS spread changes, the CDS market seems to lead the stock market, implying that information contents coming from the firm's environment seems first to have an impact on the CDS market and next to the stock market, and stock market volatility exerts a positive impact on CDS spreads.

Keywords: stock market, CDS market, mean and volatility spillovers, EC and MVGARCH-M models

JEL Classification: G10, G14, C32

Suggested Citation

Lake, Andreas and Apergis, Nicholas, Credit Default Swaps and Stock Prices: Further Evidence within and Across Markets from Mean and Volatility Transmission with a MVGARCH-M Model and Newer Data (January 19, 2009). Available at SSRN: https://ssrn.com/abstract=1330011 or http://dx.doi.org/10.2139/ssrn.1330011

Andreas Lake

Eurobank-Ergasias EFG

20 Amalias Avenue & 5 Souri Street
Athens
Greece

Nicholas Apergis (Contact Author)

University of Piraeus ( email )

Karaoli and Dimitriou 80
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18534
Greece

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

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