Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25413
Authors: 
Norden, Lars
Weber, Martin
Year of Publication: 
2004
Series/Report no.: 
CFS Working Paper 2004/20
Abstract: 
This paper analyzes the empirical relationship between credit default swap, bond and stock markets during the period 2000-2002. Focusing on the intertemporal comovement, we examine weekly and daily lead-lag relationships in a vector autoregressive model and the adjustment between markets caused by cointegration. First, we find that stock returns lead CDS and bond spread changes. Second, CDS spread changes Granger cause bond spread changes for a higher number of firms than vice versa. Third, the CDS market is significantly more sensitive to the stock market than the bond market and the magnitude of this sensitivity increases when credit quality becomes worse. Finally, the CDS market plays a more important role for price discovery than the corporate bond market.
Subjects: 
Credit risk
Credit spreads
Credit derivatives
Lead-lag relationship
JEL: 
G10
G14
C32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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