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Financial Crises and Information Transfer - An Empirical Analysis of the Lead-Lag Relationship between Equity and CDS iTraxx Indices

28 Pages Posted: 8 Apr 2010  

Stefan Ehlers

Technische Universität Braunschweig - Institute of Finance

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Sven Olboeter

University of Braunschweig - Institute of Technology , Department of Finance

Date Written: April 6, 2010

Abstract

This study examines the lead-lag-relationship between European equity and CDS markets in the context of the financial crisis. Previous research identified the stock market to lead the CDS market in an ordinary economic environment. Against the background of our study this lead-lag-relationship strengthens when moving from the non-crisis- to the crisis-scenario on a daily as well as on a weekly basis. Hence, we conclude that information transfer from stock to CDS markets widens during the financial crisis. In addition and in contrast to the literature we find an extraordinary day-of-the-week-effect on weekly returns as an anomaly for information processing.

Keywords: Granger-causality, iTraxx Indices, Credit Default Swaps, Day-of-the-Week-Effect, Feedback System

JEL Classification: G14, G15, G17

Suggested Citation

Ehlers, Stefan and Gürtler, Marc and Olboeter, Sven, Financial Crises and Information Transfer - An Empirical Analysis of the Lead-Lag Relationship between Equity and CDS iTraxx Indices (April 6, 2010). Available at SSRN: https://ssrn.com/abstract=1585132 or http://dx.doi.org/10.2139/ssrn.1585132

Stefan Ehlers

Technische Universität Braunschweig - Institute of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

Marc Gürtler (Contact Author)

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

Sven Olboeter

University of Braunschweig - Institute of Technology , Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, D-38106
Germany

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