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Financial crises and information transfer: An empirical analysis of the lead-lag relationship between equity and CDS iTraxx Indices

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  • Ehlers, Stefan
  • Gürtler, Marc
  • Olboeter, Sven
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    Abstract

    This study examines the lead-lag-relationship between European equity and CDS markets in the context of the financial crisis. Previous research identified the stock market to lead the CDS market in an ordinary economic environment. Against the background of our study this lead-lag-relationship strengthens when moving from the non-crisis- to the crisisscenario on a daily as well as on a weekly basis. Hence, we conclude that information transfer from stock to CDS markets widens during the financial crisis. In addition and in contrast to the literature we find an extraordinary day-of-the-week-effect on weekly returns as an anomaly for information processing. --

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    Bibliographic Info

    Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number IF34V1.

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    Date of creation: 2010
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    Handle: RePEc:zbw:tbsifw:if34v1

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    Related research

    Keywords: Granger-causality; iTraxx Indices; Credit Default Swaps; Day-of-the-Week-Effect; Feedback System;

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    1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 29(2), pages 449-70, May.
    2. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 7(2), pages 147-59, April.
    3. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers, Michigan State - Econometrics and Economic Theory 8905, Michigan State - Econometrics and Economic Theory.
    4. McCrorie, J. Roderick & Chambers, Marcus J., 2006. "Granger causality and the sampling of economic processes," Journal of Econometrics, Elsevier, Elsevier, vol. 132(2), pages 311-336, June.
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