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Financial CDS, stock market and interest rates: Which drives which?

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  • Hammoudeh, Shawkat
  • Sari, Ramazan

Abstract

The objective is to examine the short- and long-run dynamics of US financial CDS index spreads at the sector level and explore their relationships with the stock market and the short- and long-run government securities, paying particular attention to the subperiod that begins with the 2007 Great Recession. We use daily time series for the three US five-year CDS index spreads for banking, financial services and insurance sectors, the S&P 500 index, the short- and long-term Treasury securities rates. Employing the Autoregressive Distributed Lag approach (ARDL), this study finds more long-run relationships between the five financial variables in Model II that includes the six-month T bill rate than Model I that includes the 10-year T bond rate. The long-run relationships have weakened in both models under the subperiod than the full period. Moreover, the short-run dynamics have changed under the subperiod but the changes are mixed. Implications are relevant for decision-makers who are interested in financial relationships at the sector level than at the firm level.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 22 (2011)
Issue (Month): 3 ()
Pages: 257-276

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Handle: RePEc:eee:ecofin:v:22:y:2011:i:3:p:257-276

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Web page: http://www.elsevier.com/locate/inca/620163

Related research

Keywords: Sector CDSs; Risk; Forcing variables; Great recession; Equilibrium adjustments;

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Cited by:
  1. Lee, Chien-Chiang & Yang, Shih-Jui & Chang, Chi-Hung, 2014. "Non-interest income, profitability, and risk in banking industry: A cross-country analysis," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 48-67.
  2. Caporin, Massimiliano, 2013. "Equity and CDS sector indices: Dynamic models and risk hedging," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 261-275.
  3. Ben Salha, Ousama & Jaidi, Zied, 2013. "Some new evidence on the determinants of money demand in developing countries – A case study of Tunisia," MPRA Paper 51788, University Library of Munich, Germany.
  4. Bekhet, Hussain Ali & Matar, Ali, 2013. "Co-integration and causality analysis between stock market prices and their determinates in Jordan," Economic Modelling, Elsevier, vol. 35(C), pages 508-514.
  5. Tamakoshi, Go & Hamori, Shigeyuki, 2014. "Spillovers among CDS indexes in the US financial sector," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 104-113.
  6. Lee, Chien-Chiang & Huang, Wei-Ling & Yin, Chun-Hao, 2013. "The dynamic interactions among the stock, bond and insurance markets," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 28-52.

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