Contagion in Major CDS Markets for the Post Global Financial Crisis: A Multivariate AR-FIGARCH-cDCC Approach

Abstract

We explore the time-varying conditional correlations of the Sovereing CDS spread returns for Germany, France, China and Japan against USA. We employ a cDCC-AR-FIGARCH model in order to capture potential contagion effects between the markets during the 2011-2018 post global financial crisis. Empirical results do not reject contagion for the country pairs: Germany – France, Germany – Japan and France – Japan while there is little support for contagion among China and the rest of the countries.

Keywords: Financial contagion, Global Financial Crisis, cDCC-AR-FIGARCH model, Sovereign CDS market

JEL Classification: C58, F30, G01, G15