Asymmetric convergence in US financial credit default swap sector index markets
AbstractThis study examines the asymmetric adjustments to the long-run equilibrium for credit default swap (CDS) sector indexes of three financial sectors – banking, financial services and insurance – in the presence of a threshold effect. The results of the momentum-threshold autoregression (M-TAR) models demonstrate that asymmetric cointegration exists for all pairs comprised of those three CDS indexes. The speeds of adjustment in the long-run are much higher in the case of adjustments from below the threshold than from above for all the pairs. The estimates of The MTAR-VEC models suggest that the dual CDS index return in each sector pair participates in the adjustment to equilibrium in the short- and long-run taken together. But in the long-run alone, only one of the two spreads in each pair participates. Policy implications are also provided.
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Bibliographic InfoArticle provided by Elsevier in its journal The Quarterly Review of Economics and Finance.
Volume (Year): 51 (2011)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/620167
Credit default swaps; Threshold; Asymmetric adjustment; Widenings; Narrowings;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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