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Financial Market Reaction To Changes In The Volatilities Of Cds Returns

Author

Listed:
  • Gheorghe HURDUZEU

    (The Bucharest University of Economic Studies, Department of International Business and Economics)

  • Radu Cristian MUSETESCU

    (The Bucharest University of Economic Studies, Department of International Business and Economics)

  • Georgeta Madalina MEGHISAN

    (University of Craiova, Faculty of Economics and Business Administration)

Abstract

The dynamics of the CDS sovereign instrument provides important information about the evolution of country risk as it is perceived by the financial markets. Therefore, if regime changes in these dynamics would signal a shift in investors’ perceptions, such a change appearing simultaneously in more than one country, would flag the existence of contagion. This paper uses a methodology that relies on the identification of moments when regime shifts in the volatilities of CDS returns are realized simultaneously and uses these dates in an event study to quantify the reaction of three types of European financial assets to these common regime changes. Our approach showed that such reactions are found for each group of assets: foreign exchange rates, stock indices and bonds.

Suggested Citation

  • Gheorghe HURDUZEU & Radu Cristian MUSETESCU & Georgeta Madalina MEGHISAN, 2015. "Financial Market Reaction To Changes In The Volatilities Of Cds Returns," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 152-165, September.
    • Handle: RePEc:rjr:romjef:v::y:2015:i:3:p:152-165
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    References listed on IDEAS

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    Cited by:

    1. Cristea Mirela & Danciulescu Andreea-Gabriela, 2016. "The Impact Of The Unemployment Rate On The Insurance Development In Romania. Statistical Approaches," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 186-192, December.

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    More about this item

    Keywords

    GARCH class of models; spillover effects; eventy study; sovereign risk;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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