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Sector spillovers in credit markets

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  • Collet, Jerome
  • Ielpo, Florian

Abstract

Cross-sector volatility spillovers can both threaten the financial stability of credit markets and the diversification of a credit bond portfolio. In this article, we measure cross-sector volatility spillovers, casting light on their intensity in the US-denominated investment grade bond universe. We find that volatility spillovers are high in the US credit market and that the insurance, goods and energy sectors have been net contributors to these shocks over the 1996–2017 period. A structural analysis of the spillover history based on a three-regime multivariate VAR Markov Switching model is then proposed. It highlights that with different volatility regimes come different volatility spillover structures: the insurance and goods sectors are volatility spillover sources during crisis periods. However, according to our estimates a large portion of spillovers are non-recurring and therefore difficult to anticipate.

Suggested Citation

  • Collet, Jerome & Ielpo, Florian, 2018. "Sector spillovers in credit markets," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 267-278.
  • Handle: RePEc:eee:jbfina:v:94:y:2018:i:c:p:267-278
    DOI: 10.1016/j.jbankfin.2018.07.011
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    References listed on IDEAS

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    Cited by:

    1. Mehmet Balcilar & Zeynel Abidin Ozdemir & Huseyin Ozdemir, 2018. "Dynamic return and volatility spillovers among S&P 500, crude oil and gold," Working Papers 15-46, Eastern Mediterranean University, Department of Economics.

    More about this item

    Keywords

    Credit spreads; Volatility spillovers; Credit sectors; Connectedness; Systemic risk; Markov switching; VAR;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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