The integration of the credit default swap markets during the US subprime crisis: Dynamic correlation analysis |
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Authors: | Ping Wang Tomoe Moore |
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Institution: | a Birmingham Business School, University of Birmingham, Edgbaston, Birmingham B15 2TT, United Kingdom b Centre for Empirical Finance, Department of Economics and Finance, Brunel University, Uxbridge, Middlesex UB8 3PH, United Kingdom |
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Abstract: | This paper investigates the integration of the credit default swap (CDS) markets of 38 developed and emerging countries with the US market during the subprime crisis period by utilising dynamic conditional correlation from the multivariate GARCH model. Evidence reveals that the Lehman shock seems to have strengthened the integration, in particular, for developed markets. For both developed and emerging markets, declining US interest rates are found to be the main driving factor behind the higher level of correlation, suggesting that the CDS markets were heavily driven by the world largest economy when the crisis reached its peak. |
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Keywords: | E4 G1 |
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