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An asymmetric DCC analysis of correlations among bank CDS indices

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  • Go Tamakoshi
  • Shigeyuki Hamori

Abstract

This study explores the time-varying correlations among the bank industry Credit Default Swap (CDS) indices for the EU, the UK and the US, using the asymmetric Dynamic Conditional Correlation (DCC) model developed by Cappiello et�al . (2006). The main findings of the study include: (i) The correlations between each pair of bank CDS indices vary substantially over time. (ii) There is evidence of asymmetric dynamic correlations between the EU and the UK bank CDS indices. The correlations between them tend to be higher when responding to joint downward shocks. (iii) The conditional correlations between the US bank CDS and the UK and the EU bank CDS, respectively, exhibited significant drops immediately after the collapse of Lehman Brothers during the global financial crisis. (iv) The sovereign debt crisis dummy in Autoregressive (AR) models, applied to the estimated DCCs, is significantly positive for the UK and US bank CDSs, as shown by the increased correlations after the onset of the debt crisis.

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File URL: http://hdl.handle.net/10.1080/09603107.2012.727973
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 23 (2013)
Issue (Month): 6 (March)
Pages: 475-481

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Handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:475-481

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