The comovement of credit default swap, bond and stock markets: an empirical analysis
- 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. JEL Klassifikation: G10, G14, C32.
| Author: | Lars Norden, Martin Weber |
|---|---|
| URN: | urn:nbn:de:hebis:30-10712 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,20 |
| Series (Serial Number): | CFS working paper series (2004, 20) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2004 |
| Year of first Publication: | 2004 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2005/06/13 |
| Tag: | Credit derivatives; Credit risk; Credit spreads; Lead-lag relationship |
| GND Keyword: | Swap; Kreditderivat; Kreditrisiko; Derivat, Wertpapier; Rentenmarkt; Aktienmarkt; Aktienbörse; Geschichte 2000-2002 |
| Issue: | This Version: September 2, 2004 |
| Note: | First version: March 29, 2004. This Version: September 2, 2004. |
| HeBIS-PPN: | 222082429 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
