File(s) under permanent embargo
Reason: This item is currently closed access.
An empirical analysis of the impact of the credit default swap index market on large complex financial institutions
journal contribution
posted on 2017-02-24, 09:57 authored by Giovanni Calice, Christos IoannidisThis paper contributes to the primarily empirical literature by conducting the first extensive empirical analysis of the impact of the degree of co-movement in the main standardized credit default swap (CDS) indices on the group of large complex financial institutions (LCFIs). We attempt to account for the dynamics between banks' equity returns and most liquid CDS market indices, the investment grade 5-year CDX North America and the investment grade 5-year iTraxx Europe, through conditioning our analysis on the historical correlation between the variables. Our most important findings are threefold. First, we find that equity returns for all the LCFIs are negatively correlated to both the CDX and the iTraxx indices. Second, the CDX index is the dominant factor driving shocks across all the LCFIs and this effect is stronger for European than US banks. Third, the impact of CDS market volatility on the equity return volatility of LCFIs appears very pronounced, suggesting a transmission mechanism which results in the destabilisation of banks and a subsequent increase in their default risk. © 2012 Elsevier Inc.
History
School
- Business and Economics
Department
- Business
Published in
International Review of Financial AnalysisVolume
25Pages
117 - 130Citation
CALICE, G. and IOANNIDIS, C., 2012. An empirical analysis of the impact of the credit default swap index market on large complex financial institutions. International Review of Financial Analysis, 25, pp.117-130Publisher
© Elsevier Inc.Version
- NA (Not Applicable or Unknown)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Publication date
2012Notes
This paper is closed access.ISSN
1057-5219Publisher version
Language
- en