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OTC Derivatives and Global Economic Activity: An Empirical Analysis

Author

Listed:
  • Gordon Bodnar

    (Johns Hopkins School of Advanced International Studies, The Johns Hopkins University, Washington, DC 20036, USA)

  • Jonathan Fortun

    (Johns Hopkins School of Advanced International Studies, The Johns Hopkins University, Washington, DC 20036, USA)

  • Jaime Marquez

    (Johns Hopkins School of Advanced International Studies, The Johns Hopkins University, Washington, DC 20036, USA)

Abstract

That the global market for derivatives has expanded beyond recognition is well known. What is not know is how this market interacts with economic activity. We provide the first empirical characterization of interdependencies between OECD economic activity and the global OTC derivatives market. To this end, we apply a vector-error correction model to OTC derivatives disaggregated across instruments and counterparties. The results indicate that with one exception, the heterogeneity of OTC contracts is too pronounced to be reliably summarized by our measures of economic activity. The one exception is interest-rate derivatives held by Other Financial Institutions.

Suggested Citation

  • Gordon Bodnar & Jonathan Fortun & Jaime Marquez, 2017. "OTC Derivatives and Global Economic Activity: An Empirical Analysis," JRFM, MDPI, vol. 10(2), pages 1-23, June.
    • Handle: RePEc:gam:jjrfmx:v:10:y:2017:i:2:p:13-:d:101437
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    References listed on IDEAS

    as
    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    2. Alan D. Morrison, 2005. "Credit Derivatives, Disintermediation, and Investment Decisions," The Journal of Business, University of Chicago Press, vol. 78(2), pages 621-648, March.
    3. Alan Morrison, 2000. "Credit Derivatives, Disintermediation and Investment Decisions," OFRC Working Papers Series 2001fe01, Oxford Financial Research Centre.
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