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Risk Spillovers in Oil-Related CDS, Stock and Credit Markets

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  • Hammoudeh, S.M.
  • Liu, T.
  • Chang, C-L.
  • McAleer, M.J.

Abstract

This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004-2011 period and the 2009-2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007-2008 Great Recession seems to have led to “localization†and less migration of credit and market risk in the oil-related sectors.

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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2011-15.

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Date of creation: 27 Apr 2011
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Handle: RePEc:dgr:eureir:1765023120

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Related research

Keywords: adjustments; MOVE; SMOVE; VIX; risk; sectoral CDS;

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  1. Ralf Becker & Adam Clements & Andrew McClelland, 2008. "The Jump component of S&P 500 volatility and the VIX index," NCER Working Paper Series 24, National Centre for Econometric Research.
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Cited by:
  1. Caporin, M. & McAleer, M.J., . "Ten Things You Should Know About DCC," Econometric Institute Report EI 2013-13, Erasmus University Rotterdam, Econometric Institute.

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