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CDS and Stock Market: Panel Evidence Under Cross-Section Dependency

Author

Listed:
  • Sinan Esen

    (Sakarya University)

  • Feyyaz Zeren

    (Namik Kemal University)

  • Halil Şimdi

    (Sakarya University)

Abstract

In recent years, the spreads of CDS that are crucial aspects in detecting the financial risk level of countries have been taken more notice of by investors. In this paper, we investigate the relation between CDS spreads and countries' stock indices by using Basher and Westerlund (2009) panel cointegration and Dumitrescu-Hurlin (2012) panel causality tests. Causality from stock market to CDS figures has been detected by the Sequential Panel Selection Method (SPSM) of Chortareas and Kapetanios (2009) for 7 out of 13 G20 countries. Additionally, the study finds a negative correlation between variables with the usage of Common Correlated Effects (CCE) estimator. The positive increasing trend in stock markets causes a decrease in the financial risks that naturally allow low CDS spreads.

Suggested Citation

  • Sinan Esen & Feyyaz Zeren & Halil Şimdi, 2015. "CDS and Stock Market: Panel Evidence Under Cross-Section Dependency," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 13(1), pages 31-46.
    • Handle: RePEc:seb:journl:v:13:y:2015:i:1:p:31-46
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    Cited by:

    1. Nuri Avsarligil & Emre Turgut, 2021. "A Study on the Relationship between CDS Premiums and Stock Market Indices: A Case of the Fragile Five Countries," Istanbul Business Research, Istanbul University Business School, vol. 50(2), pages 275-301, November.

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    More about this item

    Keywords

    CDS Spread; Stock Market; Panel Cointegration; Panel Causality; Cross-Section Dependency;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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