Download or read book Are the U S Stock Market and Credit Default Swap Market Related Evidence from the CDX Indices written by Hung-Gay Fung and published by . This book was released on 2009 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the market-wide relations between the U.S. stock market and the credit default swap (CDS) market for the period of 2001-2007. Results indicate that the lead-lag relationship between the U.S. stock market and the CDS market depends on the credit quality of the underlying reference entity. Specifically, this study finds significant mutual feedback of information between the stock market and the high-yield CDS market in terms of pricing and volatility, while the stock market leads the investment-grade CDS index in the pricing process. The CDS market seems to play a more significant role in volatility spillover than the stock market. That is, volatilities of both the investment-grade and high-yield CDS indices seem to lead the stock market volatility, while the latter has a feedback effect to that of the high-yield CDS market only. Overall, the implication is that market participants should seek information in both markets when they are about to engage in trading and/or hedging.

Download or read book Excess Comovement in Credit Default Swap Markets written by Lara Cathcart and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence of excess comovement in the credit default swap (CDS) market following inclusions to and exclusions from investment grade and high yield CDX indices during the 2003-2016 period. We find that when a name joins an index, its return tends to covary more with the returns of that index and conversely when it is excluded from an index, its return tends to covary less with it. We use univariate regressions and a difference-in-difference approach to show that the CDS market is impacted by indexation. This excess comovement indicates a departure from fundamental-based pricing and provides support in favour of style investing. Full paper available at https://doi.org/10.1016/j.finmar.2018.10.002.

Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.

Download or read book Indexation and Causation of Financial Markets written by Yoko Tanokura and published by Springer. This book was released on 2016-01-07 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: ​This book presents a new statistical method of constructing a price index of a financial asset where the price distributions are skewed and heavy-tailed and investigates the effectiveness of the method. In order to fully reflect the movements of prices or returns on a financial asset, the index should reflect their distributions. However, they are often heavy-tailed and possibly skewed, and identifying them directly is not easy. This book first develops an index construction method depending on the price distributions, by using nonstationary time series analysis. Firstly, the long-term trend of the distributions of the optimal Box–Cox transformed prices is estimated by fitting a trend model with time-varying observation noises. By applying state space modeling, the estimation is performed and missing observations are automatically interpolated. Finally, the index is defined by taking the inverse Box–Cox transformation of the optimal long-term trend. This book applies the method to various financial data. For example, applying it to the sovereign credit default swap market where the number of observations varies over time due to the immaturity, the spillover effects of the financial crisis are detected by using the power contribution analysis measuring the information flows between indices. The investigations show that applying this method to the markets with insufficient information such as fast-growing or immature markets can be effective.

Download or read book Credit Default Swaps written by Christopher L. Culp and published by Springer. This book was released on 2018-07-12 with total page 356 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, unique in its composition, reviews the academic empirical literature on how CDSs actually work in practice, including during distressed times of market crises. It also discusses the mechanics of single-name and index CDSs, the theoretical costs and benefits of CDSs, as well as comprehensively summarizes the empirical evidence on important aspects of these instruments of risk transfer. Full-time academics, researchers at financial institutions, and students will benefit from the dispassionate and comprehensive summary of the academic literature; they can read this book instead of identifying, collecting, and reading the hundreds of academic articles on the important subject of credit risk transfer using derivatives and benefit from the synthesis of the literature provided.

Download or read book Information Efficiency of the U S Credit Default Swap Market written by Gaiyan Zhang and published by . This book was released on 2013 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Credit Default Swap (CDS) market attracted much debate during the 2008 financial crisis. Opponents of CDS argue that CDS could lead to financial instability as it allows speculators to bet against companies and make the crisis worse. Proponents of CDS believe that CDS could increase market competition and benefit hedging activities. Moreover, an efficient CDS market can serve as a barometer to regulators and investors regarding the credit health of the underlying reference entity. We investigate information efficiency of the U.S. CDS market using evidence from earnings surprises. Our findings confirm that negative earnings surprises are well anticipated in the CDS market in the month prior to the announcement, with both economically and statistically stronger reactions for speculative-grade firms than for investment-grade firms. On the announcement day, for both positive and negative earnings surprises, the CDS spread for speculative-grade firms presents abnormal changes. Moreover, there is no post-earnings announcement drift in the CDS market, which is in direct contrast to the well-documented post-earnings drift in the stock market. Our evidence supports the efficiency of the CDS market.

Download or read book The Interrelationship Between Financial and Energy Markets written by Sofia Ramos and published by Springer. This book was released on 2014-08-09 with total page 315 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the last decade, energy markets have developed substantially due to the growing activity of financial investors. One consequence of this massive presence of investors is a stronger link between the hitherto segmented energy and financial markets. This book addresses some of the recent developments in the interrelationship between financial and energy markets. It aims to further the understanding of the rich interplay between financial and energy markets by presenting several empirical studies that illustrate and discuss some of the main issues on this agenda.

Download or read book Credit Default Swaps and Stock Prices written by Andreas Lake and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: The goal of this paper is to investigate empirically the association between the stock market and the credit default swap (CDS) market in terms of mean as well as volatility spillovers. Making use of 1612 daily observations from four stock markets, i.e., US, German, UK and Greek markets, as well as from two European CDS indices along with the methodology of the error correction (EC) and the multivariable generalized heteroskedasticity in mean (MVGARCH-M) modelling, the empirical findings yield: stock returns across European and US markets are negatively related to European CDS spread changes, the CDS market seems to lead the stock market, implying that information contents coming from the firm's environment seems first to have an impact on the CDS market and next to the stock market, and stock market volatility exerts a positive impact on CDS spreads.

Download or read book Recent Perspectives and Case Studies in Finance Econometrics written by Ozan Gönüllü and published by IJOPEC PUBLICATION. This book was released on 2018-11-30 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Are Credit Default Swaps Spreads High in Emerging Markets written by Mr.Manmohan Singh and published by International Monetary Fund. This book was released on 2003-12-01 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: In times of distress when a country loses access to markets, there is evidence that credit default swap (CDS) spreads are a leading indicator for sovereign risk than the EMBI+ sub-index for the country. However, it is not easy to discern the variables that determine the level of CDS spreads in Emerging Markets (EM); traders only quote the CDS spreads and not the inputs that are required to calculate such spreads. This note provides some evidence from Argentina and Brazil that reveals inconsistency between theory and practice in pricing CDS spreads in EM. This note suggests an alternate methodology that links CTD (cheapest-to-deliver) bonds to recovery values assumed in CDS contracts. Furthermore, special features that pertain to CDS contracts (repo specialness, short squeezes by central banks) may also magnify the financial distress of a sovereign.

Download or read book Mathematical and Statistical Methods for Actuarial Sciences and Finance written by Marco Corazza and published by Springer. This book was released on 2018-07-17 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: The interaction between mathematicians, statisticians and econometricians working in actuarial sciences and finance is producing numerous meaningful scientific results. This volume introduces new ideas, in the form of four-page papers, presented at the international conference Mathematical and Statistical Methods for Actuarial Sciences and Finance (MAF), held at Universidad Carlos III de Madrid (Spain), 4th-6th April 2018. The book covers a wide variety of subjects in actuarial science and financial fields, all discussed in the context of the cooperation between the three quantitative approaches. The topics include: actuarial models; analysis of high frequency financial data; behavioural finance; carbon and green finance; credit risk methods and models; dynamic optimization in finance; financial econometrics; forecasting of dynamical actuarial and financial phenomena; fund performance evaluation; insurance portfolio risk analysis; interest rate models; longevity risk; machine learning and soft-computing in finance; management in insurance business; models and methods for financial time series analysis, models for financial derivatives; multivariate techniques for financial markets analysis; optimization in insurance; pricing; probability in actuarial sciences, insurance and finance; real world finance; risk management; solvency analysis; sovereign risk; static and dynamic portfolio selection and management; trading systems. This book is a valuable resource for academics, PhD students, practitioners, professionals and researchers, and is also of interest to other readers with quantitative background knowledge.

Download or read book Nonlinearity in Investment Grade Credit Default Swap CDS Indices of US and Europe written by Vinodh Madhavan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is aimed at testing for nonlinearity and chaos in Investment Grade CDS Indices of US and Europe. For this exercise, the author has chosen the two most liquid indices, namely CDX.NA.IG (US) and iTraxx.Europe (Europe). BDS test (Brock, Dechert, & Scheinkman, 1987) is employed to test for prevalence of nonlinearity in the US and European datasets. The author then subjects both the US and European datasets to the close-returns test (Gilmore, 1996; Gilmore, 1993; Gilmore, 2001) to examine whether the close-returns plots pertaining to these datasets exhibit any chaotic patterns. The CDS datasets were prepared differently for BDS and close-returns test. Since the BDS test cannot differentiate between linear and non-linear dependency, a best-fitting AR model was fitted to the transformed CDS datasets to remove linear-dependency in the data. The BDS test was then applied to the stationary, linearly-independent AR residuals pertaining to transformed US and European datasets. BDS test outcomes revealed rejection of null hypothesis (i.i.d.) with regard to US and European Investment-Grade CDS Indices. The close-returns test outcomes revealed prevalence of an underlying structure that is neither random nor chaotic in nature. In short, the study's findings reveal prevalence of non-chaotic nonlinearity in the US and European CDS indices. These findings not only augment existing literature on nonlinearity of different asset classes, but also reflect the need for researchers and practitioners to accommodate and appropriately account for nonlinearity while modeling CDS indices spread movements.

Download or read book Recent Advances in Economics and Administration Sciences Concepts Researches and Applications written by Ahmet Niyazi ÖZKER and published by Livre de Lyon. This book was released on 2023-03-25 with total page 301 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent Advances in Economics and Administration Sciences Concepts, Researches and Applications

Download or read book An Investigation of the Volatility of Credit Default Swap Index Spreads written by Norbert Heinzl and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Using daily data on Credit Default Swap (CDS) quotes of 171 North American obligors from 2008-2013, this thesis represents the first detailed empirical investigation of volatility patterns of CDS index quotes. For this purpose, a dataset is constructed from 223,096 observations and is divided into three parts, following the logic of the Markit Investment Grade (IG) index, its High Volatility (HV) subindex and the Markit High Yield (HY) index in order to answer two central questions: i) is the popularity of the GARCH model class for conditional heteroscedasticity justified when considering the volatility of CDS market segments and ii) what determines CDS index spread changes in the lower and upper quantiles of their distribution. Regression analyses using three different GARCH models indicate a high relevance of one-day lagged shocks and variances for the conditional variance of CDS index spreads, yet no favorite model can be identified among these. The residuals of these regressions are characterized by a leptokurtic distribution with tails slightly fatter than those of a normal one, confirmed by the shape parameter of the generalized error distribution. The student's t-distribution is therefore more suited in this context as the standard assumption of normally distributed error terms. In the conditional quantile regressions for large CDS index spread changes, the most important factors are the VIX index, the MSCI World index and the put-implied equity volatility. For the High Yield sector, there is evidence in the upper quantile of CDS index spread changes that other equity market-oriented variables become statistically relevant, implying an increasing information sensitivity in markets with underlying debt riskier than Investment Grade level. These results prove stable across the conditional quantile regressions and improve the understanding of the volatility of CDS markets.

Download or read book How Did CDS Markets Impact Stock Markets Evidence from Latest Financial Crisis written by Hasan Baklaci and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well-documented that financial markets become more integrated during turmoil periods. In addition, the recent global financial crisis has led to an in depth analysis and discussion of the pros and cons of derivative instruments, particularly credit default swaps, which are considered as the best proxy for firm and sovereign default risk. The aim of this study is to explore if default risk, represented by CDS spreads, is embedded in stock returns. Our main assertion rests on the idea that if CDS spreads proxy default risk, then it should have informational content for stock markets and should have a significant impact in price formation process. The analysis is conducted by using CDS Regional Index spreads and MSCI Regional Index values in Europe, Pacific Region and Emerging Markets. The results indicate that changes in CDS Regional Index spreads significantly impact stock indices within the same region as well as cross-regionally.

Download or read book CDS and Equity Market Reactions to Stock Issuances in the U S Financial Industry written by Marcia Millon Cornett and published by . This book was released on 2014 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study market reactions to seasoned equity issuances that were announced by financial companies between 2002 and 2013. To assess the risk and valuation implications of these seasoned equity issuances, we conduct an event analysis using daily credit default swap (CDS) and stock market pricing data. The major findings of the paper are that CDS prices respond quickly to new, default-relevant information. Over the full sample period, cumulative abnormal CDS spreads drop in response to equity issuance announcements. The reactions are significantly stronger during the financial crisis. At that time, the federal government injected equity into financial institutions to ensure their viability. The market reacted to the equity issue announcements by assessing significantly lower costs for default protection via credit default swaps. The evidence indicates that single-name CDS based on financial firms' default probabilities are potentially useful for private investors and regulators.

Download or read book Are Credit Default Swap Spreads Market Driven written by Hayette Gatfaoui and published by . This book was released on 2017 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: We focus on the link prevailing between credit default swap spreads and the U.S. financial market. We apply the Flexible Least Squares regression method to investigate the relationship between CDX spreads and Dow Jones Composite index return. We care about bad scenarios where a decrease in the U.S. market index triggers an increase in CDX spreads.