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An asymmetric DCC analysis of correlations among bank CDS indices

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  • Go Tamakoshi
  • Shigeyuki Hamori

Abstract

This study explores the time-varying correlations among the bank industry Credit Default Swap (CDS) indices for the EU, the UK and the US, using the asymmetric Dynamic Conditional Correlation (DCC) model developed by Cappiello et al . (2006). The main findings of the study include: (i) The correlations between each pair of bank CDS indices vary substantially over time. (ii) There is evidence of asymmetric dynamic correlations between the EU and the UK bank CDS indices. The correlations between them tend to be higher when responding to joint downward shocks. (iii) The conditional correlations between the US bank CDS and the UK and the EU bank CDS, respectively, exhibited significant drops immediately after the collapse of Lehman Brothers during the global financial crisis. (iv) The sovereign debt crisis dummy in Autoregressive (AR) models, applied to the estimated DCCs, is significantly positive for the UK and US bank CDSs, as shown by the increased correlations after the onset of the debt crisis.

Suggested Citation

  • Go Tamakoshi & Shigeyuki Hamori, 2013. "An asymmetric DCC analysis of correlations among bank CDS indices," Applied Financial Economics, Taylor & Francis Journals, vol. 23(6), pages 475-481, March.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:475-481
    DOI: 10.1080/09603107.2012.727973
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    References listed on IDEAS

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    1. Dooley, Michael & Hutchison, Michael, 2009. "Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1331-1349, December.
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    5. Toyoshima, Yuki & Tamakoshi, Go & Hamori, Shigeyuki, 2012. "Asymmetric dynamics in correlations of treasury and swap markets: Evidence from the US market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 381-394.
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    Cited by:

    1. Xiao Jing Cai & Shuairu Tian & Shigeyuki Hamori, 2017. "Stock Market Integration in China: Evidence from the Asymmetric DCC Model and Copula Approach," Applied Economics and Finance, Redfame publishing, vol. 4(2), pages 1-10, March.

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