Publication details
Interactions between CDS markets and bond markets
| Authors | |
|---|---|
| Year of publication | 2013 |
| Type | Article in Proceedings |
| Conference | Proceedings of 4th International PhD Student Conference New Economic Challenges |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | Credit default swap market; bond market; Granger causality test |
| Attached files | |
| Description | The study examines the relationship between credit default swaps prices and bonds prices of chosen financial institutions. The aim of this study is to find out whether the role of credit default swap markets has been changed by financial crisis. It compares the development of prices of credit default swaps and bonds. The interaction between credit default swap markets and bond markets is investigated in period before, during and after financial crisis. The attention is paid to corporate credit default swaps and bonds. In this study, the investigated credit default swap market is represented by Markit iTraxx Europe Senior Financial index. Granger causality test is employed to estimate relationships between observed credit default swaps and bonds of chosen financial institutions. This test tries to find if credit default swap prices do “Grangercause” bond prices (past values of credit default swap prices improve the prediction of future bond prices), and vice versa if bond prices do “Granger-cause” credit default swap prices (past values of bond prices improve the prediction of credit default swap prices). Credit default swap markets are considered as a leading indicator of the future development of creditworthiness, which can point out the potential situation in economy. This finding can be useful and beneficial for the participants in the financial markets, regulators, policy makers within their decision making. |
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