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Contagion inside the credit default swaps market: The case of the GM and Ford crisis in 2005

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  • Coudert, Virginie
  • Gex, Mathieu

Abstract

We study the General Motors (GM) and Ford crisis in 2005 in order to determine if the credit default swap (CDS) market is subject to contagion effects. Has the crisis spread to the whole (CDS) market? To answer this question, we study the correlations between CDS premia, by using a sample of 226 CDSs on major US and European firms. We do evidence a significant rise in correlations during the crisis episode, but little "shift-contagion" as defined by Forbes and Rigobon (2002). When using dynamic measures of correlations (EWMA and DCC-GARCH), we also show that correlations significantly increased during the crisis, especially in the first week.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 20 (2010)
Issue (Month): 2 (April)
Pages: 109-134

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Handle: RePEc:eee:intfin:v:20:y:2010:i:2:p:109-134

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

Related research

Keywords: Credit default swaps Correlation Contagion;

References

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Citations

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Cited by:
  1. Ansgar Belke & Christian Gokus, 2011. "Volatility Patterns of CDS, Bond and Stock Markets before and during the Financial Crisis: Evidence from Major Financial Institutions," Discussion Papers of DIW Berlin 1107, DIW Berlin, German Institute for Economic Research.
  2. Michał Adam, 2013. "Spillovers and contagion in the sovereign CDS market," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 44(6), pages 571-604.
  3. Naifar, Nader, 2011. "What explains default risk premium during the financial crisis? Evidence from Japan," Journal of Economics and Business, Elsevier, vol. 63(5), pages 412-430, September.
  4. Naifar, Nader & Al Dohaiman, Mohammed Saleh, 2013. "Nonlinear analysis among crude oil prices, stock markets' return and macroeconomic variables," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 416-431.
  5. Rodrigo César de Castro Miranda & Benjamin Miranda Tabak & Mauricio Medeiros Junior, 2012. "Contagion in CDS, Banking and Equity Markets," Working Papers Series 293, Central Bank of Brazil, Research Department.
  6. Kalbaska, A. & Gątkowski, M., 2012. "Eurozone sovereign contagion: Evidence from the CDS market (2005–2010)," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 657-673.
  7. Naifar, Nader, 2012. "Modeling the dependence structure between default risk premium, equity return volatility and the jump risk: Evidence from a financial crisis," Economic Modelling, Elsevier, vol. 29(2), pages 119-131.

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