The Comovement of credit default swap, bond and stock markets : an empirical analysis


Norden, Lars ; Weber, Martin


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URL: https://ub-madoc.bib.uni-mannheim.de/1879
Additional URL: http://ssrn.com/abstract=635981
URN: urn:nbn:de:bsz:180-madoc-18798
Document Type: Working paper
Year of publication: 2004
The title of a journal, publication series: Publications / Lehrstuhl für Allgemeine Betriebswirtschaftslehre, Finanzwirtschaft, insbesondere Bankbetriebslehre, Universität Mannheim
Volume: 116
Place of publication: Mannheim
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Publications
Subject: 330 Economics
Classification: JEL: G14 G10 C32 ,
Subject headings (SWD): Swap , Derivat <Wertpapier> , Kreditrisiko , Industrieobligation , Aktienmarkt
Individual keywords (German): Swap , Finanzderivat , Credit Default Swap , Kreditrisiko , Industrieobligation , Aktienmarkt
Keywords (English): credit derivatives , credit risk , credit spreads , lead-lag relationship
Abstract: This Paper analyses the empirical relationship between credit default swap, bond and stock markets during the period 2000-02. Focusing on the intertemporal comovement, we examine weekly and daily lead-lag relationships in a vector autoregressive model and the adjustment between markets caused by cointegration. First, we find that stock returns lead CDS and bond spread changes. Second, CDS spread changes Granger cause bond spread changes for a higher number of firms than vice versa. Third, the CDS market is significantly more sensitive to the stock market than the bond market and the magnitude of this sensitivity increases when credit quality becomes worse. Finally, the CDS market plays a more important role for price discovery than the corporate bond market.
Additional information: CEPR Discussion Paper No. 4674

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Norden, Lars ; Weber, Martin (2004) The Comovement of credit default swap, bond and stock markets : an empirical analysis. Open Access Publications / Lehrstuhl für Allgemeine Betriebswirtschaftslehre, Finanzwirtschaft, insbesondere Bankbetriebslehre, Universität Mannheim Mannheim 116 [Working paper]
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