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An Investigation Into The Linkages Between Euro And Sterling Swap Spreads

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Author Info
Somnath Chatterjee

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Abstract

This paper examines the causal relationship between euro and sterling swap spreads during the period January, 1999 to March, 2003. The absence of any correlation between changes in the two swap spreads would indicate that credit risk factors are country-specific. But euro swap spreads showed some correlation with the interest rate differentials between the two markets. Both spreads follow a GARCH process but sterling swap spreads reacted more intensely to market movements and were more volatile than their euro counterparts. There was evidence of mild volatility transmission from the sterling swap spreads to the euro swap spreads but the causality was one sided.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2005_1.

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Date of creation: Jan 2005
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Handle: RePEc:gla:glaewp:2005_1

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  1. Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September. [Downloadable!] (restricted)
  2. Tse, Yiuman & Booth, G. Geoffrey, 1996. "Common volatility and volatility spillovers between U.S. and Eurodollar interest rates: Evidence from the futures market," Journal of Economics and Business, Elsevier, vol. 48(3), pages 299-312, August. [Downloadable!] (restricted)
  3. Jun Liu & Francis A. Longstaff & Ravit E. Mandell, 2002. "The Market Price of Credit Risk: An Empirical Analysis of Interest Rate Swap Spreads," NBER Working Papers 8990, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Franklin R. Edward, 1999. "Hedge Funds and the Collapse of Long-Term Capital Management," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 189-210, Spring. [Downloadable!] (restricted)
  5. Sun, Tong-sheng & Sundaresan, Suresh & Wang, Ching, 1993. "Interest rate swaps: An empirical investigation," Journal of Financial Economics, Elsevier, vol. 34(1), pages 77-99, August. [Downloadable!] (restricted)
  6. Mark Grinblatt, 1995. "An Analytic Solution for Interest Rate Swap Spreads," University of California at Los Angeles, Anderson Graduate School of Management 1144, Anderson Graduate School of Management, UCLA. [Downloadable!]
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