Relationships between Financial Sectors’ CDS Spreads and Other Gauges of Risk: Did the Great Recession Change Them?

47 Pages Posted: 8 Sep 2011

See all articles by Shawkat M. Hammoudeh

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Ramaprasad Bhar

UNSW Business School, Risk and Actuarial Studies

Tengdong Liu

Drexel University - Bennett S. LeBow College of Business

Date Written: August 13, 2011

Abstract

The objectives are to discern how the three financial sectors’ CDS spreads interrelate to each other and with three other risks under the full sample and two subperiods: The 2007 Great Recession, and the 2009 recovery, and to assess the impact of QE1 on those risks in the second subperiod. The results indicate that the own and cross effects among the CDS’s and the other risk measures are significant and contagious. The system has become less stable and less adjusting to the equilibrium in the first subperiod. QE1 in the second period decreases risks but increases inflationary expectations.

Keywords: CDS, Risk Premium, Great Recession, Quantitative Easing

JEL Classification: C12, G12, G20

Suggested Citation

Hammoudeh, Shawkat M. and Bhar, Ramaprasad and Liu, Tengdong, Relationships between Financial Sectors’ CDS Spreads and Other Gauges of Risk: Did the Great Recession Change Them? (August 13, 2011). Available at SSRN: https://ssrn.com/abstract=1923968 or http://dx.doi.org/10.2139/ssrn.1923968

Shawkat M. Hammoudeh (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

Ramaprasad Bhar

UNSW Business School, Risk and Actuarial Studies ( email )

Sydney, NSW 2052
Australia

Tengdong Liu

Drexel University - Bennett S. LeBow College of Business ( email )

101 N. 33rd St.
Philadelphia, PA 19104
United States
2158956673 (Phone)
2159856975 (Fax)

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