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Risk spillovers in oil-related CDS, stock and credit markets

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  • Hammoudeh, Shawkat
  • Liu, Tengdong
  • Chang, Chia-Lin
  • McAleer, Michael

Abstract

This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004–2011 period and the 2009–2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007–2008 Great Recession seems to have led to “localization” and less migration of credit and market risk in the oil-related sectors.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 36 (2013)
Issue (Month): C ()
Pages: 526-535

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Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:526-535

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Risk; Sectoral CDS; VIX; SMOVE; MOVE; Adjustments;

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Cited by:
  1. Caporin, M. & McAleer, M.J., 2013. "Ten Things You Should Know About DCC," Econometric Institute Research Papers EI 2013-13, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. Caporin, M. & McAleer, M.J., 2013. "Ten Things You Should Know About the Dynamic Conditional Correlation Representation," Econometric Institute Research Papers EI 2013-21, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. repec:dgr:uvatin:2013048 is not listed on IDEAS
  4. Blumenstock, Hendrik & von Grone, Udo & Mehlhorn, Marc & Merkl, Johannes & Pietz, Marcus, 2012. "Einflussfaktoren von CDS-Spreads als Maß für das aktuelle Bonitätsrisiko: Liefert das Rating eine Erklärung?," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-03, University of Bayreuth, Chair of Finance and Banking.

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