The Co-movement of Credit Default Swap Spreads, Stock Market Returns and Volatilities: Evidence from Asia-Pacific Markets

29 Pages Posted: 21 Feb 2023

See all articles by José Da Fonseca

José Da Fonseca

Auckland University of Technology - Faculty of Business & Law

Katrin Gottschalk

Auckland University of Technology - Business School - Department of Finance; European University Viadrina - Department of Finance and Capital Market Theory

Date Written: December 13, 2013

Abstract

We study the co-movement of credit and equity markets in four Asia-Pacific countries at firm and index level. First, we establish realized volatility as an important determinant of CDS spread levels and changes. Second, we examine lead-lag relationships between CDS spreads, volatility and stock returns using a vector-autoregressive model. At the firm level stock returns lead the other variables. However, at the index level volatility and CDS spreads are equally important. Third, we analyze volatility spillovers using the measures proposed by Diebold and Yilmaz (2011). The results suggest that realized volatility is the main contributor to cross-market volatility spillovers.

Keywords: Credit Risk, Credit Default Swap, High-Frequency Data, Realized Volatility, Granger Causality, Volatility Spillover Effects

JEL Classification: G12, G13, C13

Suggested Citation

Da Fonseca, José and Gottschalk, Katrin, The Co-movement of Credit Default Swap Spreads, Stock Market Returns and Volatilities: Evidence from Asia-Pacific Markets (December 13, 2013). Available at SSRN: https://ssrn.com/abstract=4360831 or http://dx.doi.org/10.2139/ssrn.4360831

José Da Fonseca (Contact Author)

Auckland University of Technology - Faculty of Business & Law ( email )

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Katrin Gottschalk

Auckland University of Technology - Business School - Department of Finance ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020, Auckland 1010
New Zealand
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European University Viadrina - Department of Finance and Capital Market Theory

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Frankfurt (Oder), 15230
Germany
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