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Contagion in the Credit Default Swap Market: the case of the GM and Ford Crisis in 2005

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Author Info
Virginie Coudert
Mathieu Gex

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Abstract

Has the General Motors (GM) and Ford crisis in 2005 spread to the whole credit default swap (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 show that correlations significantly increased during the crisis, especially in the first week. We also test the links between markets at the firm level, using VECM and VAR models. The lead of the CDS market over the bond market appears to have weakened during the crisis. The links with the equity market were also mitigated.

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Paper provided by CEPII research center in its series Working Papers with number 2008-14.

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Date of creation: Sep 2008
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Handle: RePEc:cii:cepidt:2008-14

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Related research
Keywords: Credit Default Swap; bond; equity; correlation; contagion;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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