Financial CDS, stock market and interest rates: Which drives which?

Date

2011-12-01

Author

Hammoudeh, Shawkat
Sarı, Ramazan

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The objective is to examine the short- and long-run dynamics of US financial CDS index spreads at the sector level and explore their relationships with the stock market and the short- and long-run government securities, paying particular attention to the subperiod that begins with the 2007 Great Recession. We use daily time series for the three US five-year CDS index spreads for banking, financial services and insurance sectors, the S&P 500 index, the short- and long-term Treasury securities rates. Employing the Autoregressive Distributed Lag approach (ARDL), this study finds more long-run relationships between the five financial variables in Model II that includes the six-month T bill rate than Model I that includes the 10-year T bond rate. The long-run relationships have weakened in both models under the subperiod than the full period. Moreover, the short-run dynamics have changed under the subperiod but the changes are mixed. Implications are relevant for decision-makers who are interested in financial relationships at the sector level than at the firm level.

Subject Keywords

Sector CDSs, Risk, Forcing variables, Great recession, Equilibrium adjustments

URI

https://hdl.handle.net/11511/36386

Journal

NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE

DOI

https://doi.org/10.1016/j.najef.2011.04.001

Collections

Department of Business Administration, Article

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Citation Formats

S. Hammoudeh and R. Sarı, “Financial CDS, stock market and interest rates: Which drives which?,” NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, pp. 257–276, 2011, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/36386.