Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103591
Authors: 
da Silva, Paulo Pereira
Year of Publication: 
2014
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Publisher:] MDPI [Place:] Basel [Volume:] 2 [Year:] 2014 [Issue:] 1 [Pages:] 145-167
Abstract: 
This paper addresses the relationship between stock markets and credit default swaps (CDS) markets. In particular, I aim to gauge if the co-movement between stock prices and sovereign CDS spreads increases with the deterioration of the credit quality of sovereign debt. The analysis of correlations, Granger causality, cointegration, and the results of an error-correction model represented in a state space form show a close link between these markets, but do not evidence that the co-movement increases in periods of financial distress. I also analyze the transmission of volatility between the two markets. The results do not support the hypothesis that volatility propagation surges during financial distress periods. On the contrary, for some cases, the data suggests that the lead-lag relationships between the two markets volatility are stronger during stable periods.
Subjects: 
CDS markets
credit risk
contagion
Merton's model
price discovery
JEL: 
G13
G14
G15
G47
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Article

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