Contagion and risk premia in the amplification of crisis: evidence from Asian names in the global CDS market
In: The international financial crisis and policy challenges in Asia and the Pacific
In the turmoil of 2007-2009, troubles in a small segment of the US mortgage market escalated into a crisis of global proportions. A striking feature of the crisis is the contagion that hit Asia. In a region where direct exposures to problem mortgages were minimal, credit spreads for major borrowers widened even more than they did in Europe and the United States. We argue that the contagion was part of an amplification mechanism driven by valuation losses caused by the bursting of a global credit bubble. The valuation losses stemmed not so much from a reassessment of credit risks as from a global repricing of these risks. It was this repricing that was the main channel for contagion into Asian credit (and equity) markets. For empirical evidence, we analyze fluctuations in credit default swap (CDS) spreads and expected default frequencies (EDFs) for major Asian borrowers. We find that valuation losses on CDS contracts for these Asian borrowers arose in part from movements in global and region-specific risk pricing factors as well as from revisions to expected losses from defaults.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by Bank for International Settlements in its series BIS Papers chapters with number
52-19.||Handle:|| RePEc:bis:bisbpc:52-19||Contact details of provider:|| Postal: |
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2012.
"How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads,"
21, National Bank of Serbia.
- Eichengreen, Barry & Mody, Ashoka & Nedeljkovic, Milan & Sarno, Lucio, 2012. "How the Subprime Crisis went global: Evidence from bank credit default swap spreads," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1299-1318.
- Barry Eichengreen & Ashoka Mody & Milan Nedeljkovic & Lucio Sarno, 2009. "How the Subprime Crisis Went Global: Evidence from Bank Credit Default Swap Spreads," NBER Working Papers 14904, National Bureau of Economic Research, Inc.
- Bekaert, Geert & Hoerova, Marie & Scheicher, Martin, 2009. "What do asset prices have to say about risk appetite and uncertainty?," Working Paper Series 1037, European Central Bank.
- Jeffery D. Amato & Eli M Remolona, 2005. "The pricing of unexpected credit losses," BIS Working Papers 190, Bank for International Settlements.
- Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
- Robert R. Bliss & Nikolaos Panigirtzoglou, 2004. "Option-Implied Risk Aversion Estimates," Journal of Finance, American Finance Association, vol. 59(1), pages 407-446, 02.
- Hui Chen, 2010.
"Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure,"
Journal of Finance,
American Finance Association, vol. 65(6), pages 2171-2212, December.
- Hui Chen, 2010. "Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure," NBER Working Papers 16151, National Bureau of Economic Research, Inc.
- Joost Driessen, 2005. "Is Default Event Risk Priced in Corporate Bonds?," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 165-195.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Young Ho Eom, 2004. "Structural Models of Corporate Bond Pricing: An Empirical Analysis," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 499-544.
- Breitung, J rg & Das, Samarjit, 2008. "Testing For Unit Roots In Panels With A Factor Structure," Econometric Theory, Cambridge University Press, vol. 24(01), pages 88-108, February.
- Peter C.B. Phillips, 1985.
"Understanding Spurious Regressions in Econometrics,"
Cowles Foundation Discussion Papers
757, Cowles Foundation for Research in Economics, Yale University.
- Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
- Pedroni, Peter, 2004.
"Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis,"
Cambridge University Press, vol. 20(03), pages 597-625, June.
- Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
- Jacob Gyntelberg & Mico Loretan & Tientip Subhanij & Eric Chan, 2010.
"Private information, stock markets, and exchange rates,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 186-210
Bank for International Settlements.
- Jacob Gyntelberg & Mico Loretan & Tientip Subhanij & Eric Chan, 2009. "Private information, stock markets, and exchange rates," BIS Working Papers 271, Bank for International Settlements.
- Jacob Gyntelberg & Mico Loretan & Tientip Subhanij & Eric Chan, 2009. "Private information, stock markets, and exchange rates," Working Papers 2009-07, Economic Research Department, Bank of Thailand.
- Jushan Bai & Chihwa Kao & Serena Ng, 2007.
"Panel Cointegration with Global Stochastic Trends,"
Center for Policy Research Working Papers
90, Center for Policy Research, Maxwell School, Syracuse University.
- Ait-Sahalia, Yacine & Wang, Yubo & Yared, Francis, 2001. "Do option markets correctly price the probabilities of movement of the underlying asset?," Journal of Econometrics, Elsevier, vol. 102(1), pages 67-110, May.
- Arvind Krishnamurthy, 2009. "Amplification Mechanisms in Liquidity Crises," NBER Working Papers 15040, National Bureau of Economic Research, Inc.
- Eli M Remolona & Ilhyock Shim, 2008. "Credit derivatives an structured creit: the nascant markets of Asia and the Pacific," BIS Quarterly Review, Bank for International Settlements, June.
- Goyal, Amit & Pérignon, Christophe & Villa, Christophe, 2008. "How common are common return factors across the NYSE and Nasdaq?," Journal of Financial Economics, Elsevier, vol. 90(3), pages 252-271, December.
- Gengenbach Christian & Palm Franz C. & Urbain Jean-Pierre, 2005. "Panel Cointegration Testing in the Presence of Common Factors," Research Memorandum 050, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
When requesting a correction, please mention this item's handle: RePEc:bis:bisbpc:52-19. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.