Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337216 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Derivatives and Quantitative Studies: Seonmul yeon'gu (JDQS) [ISSN:] 2713-6647 [Volume:] 28 [Issue:] 3 [Year:] 2020 [Pages:] 107-122
Publisher: 
Emerald, Leeds
Abstract: 
This study aims to investigate the existence of contagion between liquid and illiquid assets in the credit default swap (CDS) market around the recent financial crisis. The authors perform analyses based on vector autoregression model and the dynamic conditional correlation model. The estimation of vector autoregression models reveals that changes in liquid CDS (LCDS) spreads lead to changes in illiquid CDS spreads at least one week ahead during the financial crisis period, whereas the leading direction is reversed during the post-crisis period. Moreover, the results are robust after controlling for structural variables which are proven as determinants of CDS spreads and are empirically supported. This study interprets that information was incorporated first into the LCDSs because of the flight-to-liquidity during the recent crisis period but there is a default contagion effect by reflecting illiquidity-induced credit risk after the crisis. Finally, the dynamic conditional correlation analysis also confirms the main results.
Subjects: 
Credit default swap
Contagion
Dynamic conditional correlation
Flight-to-liquidity
Granger causality
Granger causality
JEL: 
G12
G14
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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