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The Credit Default Swap market contagion during recent crises: International evidence

Author

Listed:
  • Saker Sabkha

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Christian de Peretti

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Dorra Hmaied

    (IHEC - Institut des hautes études commerciales (Carthage, Tunisie) - UCAR - Université de Carthage (Tunisie))

Abstract

This paper analyzes Credit Default Swaps spread dynamic to determine whether the sovereign Credit Default Swap market is subject to contagion effects. Analysis is performed on credit spreads data of 35 worldwide countries belonging to four different economic categories over a period from 2006 until 2014, covering the subprime crisis and the European sovereign debt crisis. A novel approach is proposed to estimate the dynamic conditional correlations between CDS spreads using AR(1)-FIEGARCH(1,d,1)-DCC model. Based on our findings, we put a slant on the financial market vulnerability, reinforced by contagion effects during the different phases of the crises. Furthermore, analysis of each county solely show that contagion effects are sterner during the Eurozone crisis comparing to the global financial crisis and that the level of exposure to crises differs across global markets and regions. Yet, our approach provides evidences that crises spread to countries across the world regardless their economic status or geographical positions.

Suggested Citation

  • Saker Sabkha & Christian de Peretti & Dorra Hmaied, 2018. "The Credit Default Swap market contagion during recent crises: International evidence," Post-Print hal-01572510, HAL.
  • Handle: RePEc:hal:journl:hal-01572510
    Note: View the original document on HAL open archive server: https://hal.science/hal-01572510
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    Cited by:

    1. Abduraimova, Kumushoy, 2022. "Contagion and tail risk in complex financial networks," Journal of Banking & Finance, Elsevier, vol. 143(C).
    2. Saker Sabkha & Christian Peretti & Dorra Hmaied, 2019. "On the informational market efficiency of the worldwide sovereign credit default swaps," Journal of Asset Management, Palgrave Macmillan, vol. 20(7), pages 581-608, December.
    3. Christian Manicaro, 2022. "The link between regional CDS spreads and equity returns: a multivariate GARCH approach," SN Business & Economics, Springer, vol. 2(2), pages 1-15, February.
    4. Tavy Ronen & Oleg Sokolinskiy & Ben Sopranzetti, 2020. "The risk management implications of using end of day consensus pricing for single name CDS," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 269-304, July.
    5. Saker Sabkha & Christian de Peretti & Dorra Hmaied, 2017. "International risk spillover in the sovereign credit markets: An empirical analysis," Working Papers hal-01652526, HAL.
    6. Choi, Sun-Yong, 2022. "Credit risk interdependence in global financial markets: Evidence from three regions using multiple and partial wavelet approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    7. Nina Tessler & Itzhak Venezia, 2022. "A multicountry measure of comovement and contagion in international markets: definition and applications," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1307-1330, May.

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    More about this item

    Keywords

    Credit Default Swaps; Contagion phenomenon; Sovereign risk spillover; Dynamic Conditional Correlation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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