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Hedging stock sector risk with credit default swaps

Author

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  • Ratner, Mitchell
  • Chiu, Chih-Chieh (Jason)

Abstract

This study examines the potential risk reducing benefits of credit default swaps (CDS) against risk in U.S. stock market sectors from 2004 to 2011. Tests of GARCH dynamic conditional correlation coefficients indicate that CDS serve as an effective hedge against risk in all stock sectors. CDS also provide a safe haven in times of extreme stock market volatility and during periods of financial crisis in a limited number of sectors.

Suggested Citation

  • Ratner, Mitchell & Chiu, Chih-Chieh (Jason), 2013. "Hedging stock sector risk with credit default swaps," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 18-25.
    • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:18-25
    DOI: 10.1016/j.irfa.2013.05.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit default swaps; Dynamic conditional correlation; Stock sector; Hedge; Safe haven;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services

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