Is there a connection between sovereign CDS spreads and the stock market? Evidence for European and US returns and volatilities
Fecha
2020Versión
Acceso abierto / Sarbide irekia
Tipo
Artículo / Artikulua
Versión
Versión publicada / Argitaratu den bertsioa
Identificador del proyecto
ES/1PE/ECO2016-77631-R
Impacto
|
10.3390/math8101667
Resumen
This study complements the current literature, providing a thorough investigation of the lead–lag connection between stock indices and sovereign credit default swap (CDS) returns for 14 European countries and the US over the period 2004–2016. We use a rolling VAR framework that enables us to analyse the connection process over time covering both crisis and non-crisis periods. In addition, we anal ...
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This study complements the current literature, providing a thorough investigation of the lead–lag connection between stock indices and sovereign credit default swap (CDS) returns for 14 European countries and the US over the period 2004–2016. We use a rolling VAR framework that enables us to analyse the connection process over time covering both crisis and non-crisis periods. In addition, we analyse the relationship between stock market volatility and CDS returns. We find that the connection between the credit and equity markets does exist and that it is time variable and seems to be related to financial crises. We also observe that stock market returns anticipate sovereign CDS returns, and sovereign CDSs anticipate the conditional volatility of equity returns, closing a connectedness circle between markets. Contribution percentages in terms of returns are more intense in the US than in Europe and the opposite result is found with respect to volatilities. Within Europe, a greater impact in Eurozone countries compared to non-Eurozone countries is observed. Finally, an additional analysis is also carried out for the financial sector, obtaining results largely consistent with those found using sovereign data. [--]
Materias
Stock market,
CDS market,
Granger causality,
Rolling VAR model
Editor
MDPI
Publicado en
Mathematics, 2020, 8(10), 1667
Departamento
Universidad Pública de Navarra. Departamento de Gestión de Empresas /
Nafarroako Unibertsitate Publikoa. Enpresen Kudeaketa Saila /
Universidad Pública de Navarra/Nafarroako Unibertsitate Publikoa. Institute for Advanced Research in Business and Economics - INARBE
Versión del editor
Entidades Financiadoras
The authors acknowledge financial support from the Fundación Ramón Areces and PGC2018-095072-B-I00. In addition, Laura Ballester acknowledges financial support from the Spanish Ministry of Science, Innovation and Universities and FEDER project PGC2018-093645-B-I00 and Ana González-Urteaga acknowledges financial support from the Ministry of Economics and Competitiveness through grant ECO2016-77631-R (AEI/FEDER.UE), from the Ministry of Science and Innovation through grant PID2019-104304GB-I00/AEI/10.13039/501100011033, and a UPNA Research Grant for Young Researchers, Edition 2018.