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CDX and iTraxx and their relation to the systemically important financial institutions: Evidence from the 2008-2009 financial crisis
journal contribution
posted on 2017-02-24, 09:27 authored by Giovanni CaliceThis paper empirically investigates the linkages between the CDS index market and the
equity returns of a sample of systemically important financial institutions (SIFIs). Both the 5-
year investment grade iTraxx Europe and the 5-year investment grade CDX North America
indexes are adopted as a market consensus of the overall credit risk in the financial system.
Through a multivariate VAR model using historical data, the investigation uncovers three key
findings. First, the equity returns for all systematically important institutions are inversely
associated to shocks in the CDS index market. Second, European institutions demonstrate a
stronger connection with the iTraxx whilst the US institutions are more closely related to the
CDX. Furthermore, volatility originating in the CDS index market is unambiguously
transmitted to both the insurance and the banking sector. Third, US banks are most severely
distressed by the volatility transmission mechanism whilst European insurers are least
affected.
History
School
- Business and Economics
Department
- Business
Published in
Journal of International Financial Markets, Institutions and MoneyVolume
32Issue
1Pages
20 - 37Citation
CALICE, G., 2014. CDX and iTraxx and their relation to the systemically important financial institutions: evidence from the 2008-2009 financial crisis. Journal of International Financial Markets, Institutions and Money, 32 (1), pp.20-37Version
- AM (Accepted Manuscript)
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
2014ISSN
1042-4431Publisher version
Language
- en