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Long-run relationships between US financial credit markets and risk factors: Evidence from the quantile ARDL approach

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  • Mensi, Walid
  • Shahzad, Syed Jawad Hussain
  • Hammoudeh, Shawkat
  • Hkiri, Besma
  • Hamed Al Yahyaee, Khamis

Abstract

This paper examines the quantile-dependent short- and long-run impact of the FFR, VIX index and crude oil prices on the credit risk of the U.S. banking, financial services and insurance sectors. Using the quantile autoregressive distributed lag model, we find that the federal funds rate and the equity volatility mainly increase the credit risk of the financial sector when the credit risk is on a rising trend. However, oil prices, and to a lesser extent, decrease the credit risk. The short- and long-run impacts of the considered risk factors are time-varying and heterogeneous across the different credit market states.

Suggested Citation

  • Mensi, Walid & Shahzad, Syed Jawad Hussain & Hammoudeh, Shawkat & Hkiri, Besma & Hamed Al Yahyaee, Khamis, 2019. "Long-run relationships between US financial credit markets and risk factors: Evidence from the quantile ARDL approach," Finance Research Letters, Elsevier, vol. 29(C), pages 101-110.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:101-110
    DOI: 10.1016/j.frl.2019.03.007
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    More about this item

    Keywords

    Financial credit sectors; Risk factors; Quantile ARDL model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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