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Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

Author

Listed:
  • Amine Lahiani

    (LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

  • Shawkat Hammoudeh
  • Rangan Gupta

Abstract

This paper investigates the asymmetric and nonlinear transmission of financial and energy prices to US five-year financial CDS sector index spreads for the banking, financial services and insurance sectors in the short- and long-run over the recent periods including the world financial crisis. We employ the nonlinear ARDL model (NARDL) to account for the shortand long-run asymmetries in the sensitivity of CDS sector index spreads to their determinants. Our findings suggest that there is evidence of short- and long-run nonlinearities and asymmetries in the adjustment process of the three CDS variables. There are also short- and long run asymmetries in the influences of macroeconomic and financial variables on the CDS sector sreads These findings are important for policy-makers who deal credit risks at sector levels.
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Suggested Citation

  • Amine Lahiani & Shawkat Hammoudeh & Rangan Gupta, 2016. "Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting," Post-Print hal-03531142, HAL.
    • Handle: RePEc:hal:journl:hal-03531142
    DOI: 10.1016/j.iref.2016.01.007
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises

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