The Credit Default Swap market contagion during recent crises: international evidence

Sabkha, Saker; Peretti, Christian de; Hmaied, Dorra Mezzez

doi:10.1007/s11156-018-0741-6

Cited by 9 publications

(16 citation statements)

References 65 publications

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“…FR did not face these dilemmas, but they are not merely hypothetical; other researchers have had to confront similar quandaries. For example, Sabkha et al ( 2019 ) show in their Table 7 that during the global financial crisis of 2008, which emanated from the US, Lithuania was infected, yet Latvia was not, and when focusing on developed countries during this crisis, six of 16 countries were infected, while the others were spared. Many bilateral analyses may, therefore, fail to take into account the broader issue of the effect of a crisis on an entire region, whereas the multicountry measure we offer focuses on this matter.…”

Section: Comparison Of the Multicountry Measure To Fr’s Measurementioning

confidence: 99%

A multicountry measure of comovement and contagion in international markets: definition and applications

Tessler

Venezia

2022

Rev Quant Finan Acc

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This paper introduces a new measure of comovement and contagion of crises between countries, applies it to 16 world crises, including the current COVID-19 pandemic, and provides insights regarding the occurrence of contagion during these crises. Our measure demonstrates several important advantages over the extant measures of contagion. Traditional measures of contagion, such as increase in correlation, could be limited in scope since they are bivariate, whereas contagion is often a regional or global market phenomenon. The multiple comparisons that the binary correlations require in such cases could yield inconclusive or contradictory results and fail to capture the broad effects of the crisis on the regions. Moreover, during crises, a country’s stock market volatility often increases, a phenomenon that could lead to a spurious indication of increased correlation with other countries (contagion). Corrections for this bias have been suggested, but they could adversely affect the power of the contagion tests and fail to detect genuine contagion. Using simulations, we show the robustness of our measure to changes in volatility and demonstrate its power to affirm instances of genuine contagion. Support for the power of our measure relative to an extant leading measure of contagion is also provided by analysis of the cases of the 1994 Mexican peso crisis, the 1997 East Asian crisis, and Black Monday, the 1987 US stock market crash.

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Section: Comparison Of the Multicountry Measure To Fr’s Measurementioning

confidence: 99%

A multicountry measure of comovement and contagion in international markets: definition and applications

Tessler

Venezia

2022

Rev Quant Finan Acc

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“…The adopted methodology, in this first step, is inspired by the work of Sabkha et al (2017) who used this model to identify contagion effect among sovereign CDS markets. The FIE-GARCH model of Bollerslev and Mikkelsen (1996) is employed in its multivariate dimension.…”

Section: The Ar(1)-dcc-fiegarch(11) Frameworkmentioning

confidence: 99%

“…k corresponds to the crisis index, it is equal to 1 when it's about the first financial crisis and equal to 2 when it comes to the sovereign crisis. In this paper, we use the same length and crises' timeline as Sabkha et al (2017) and divide our studied period into four sub-periods:…”

Section: The Ar(1)-dcc-fiegarch(11) Frameworkmentioning

confidence: 99%

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International risk spillover in sovereign credit markets: an empirical analysis

Sabkha

Peretti

Hmaied

2019

Self Cite

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Purpose The purpose of this paper is to study the volatility spillover among 33 worldwide sovereign Credit Default Swap (CDS) markets and their underlying bond markets. Design/methodology/approach In contrast to prior studies, the authors incorporate heteroscedasticity, asymmetric leverage effects and long-memory features of sovereign credit spreads simultaneously through a bivariate FIEGARCH model and a Bayesian cointegrated vector autoregressive model. Findings Similar to the literature, the findings confirm that strong evidence of credit risk spillover between credit markets is accentuated during two recent crisis periods. However, the country-by-country analysis indicates that countries exhibit different sensitivity levels and divergent reactions to financial shocks. Further, the authors show that the bidirectional interrelationship evolves over time and across countries emphasizing the necessity of time-varying national regulatory policies and trading positions. Originality/value Based on a large data set that covers the recent two financial crises and using complex methods, the work focuses on sovereign tensions that have repercussions on banks’ solvency and refinancing conditions. Yet, the study is a hot topic since that during crisis periods in the financial markets, direct and indirect interconnections increase between sovereign risk and banking risk. Using new econometric approaches, the results show that each country exhibits a different behavior toward the credit risk which is relevant to both portfolio managers and policy makers. The time-varying spillover effects detected between markets are an accurate indicator of financial stability, allowing policy makers to put in place personalized economic policies. On the other hand, markets’ participants could take advantages of the results by adjusting their trading and hedging positions on the dynamic co-movements. The findings reveal, as well, that the sovereign crisis has more weakened the global financial and banking system than the subprime crisis. The authors previously tackled the cross-country contagion phenomenon in the CDS markets, and this manuscript builds on the prior study to enhance the obtained results.

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“…For instance, the global crisis of 2008-2009 was caused, among other things, by serious problems of mortgage lending in the USA [1][2][3][4]. The crisis of 2014 was provoked by the geopolitical disagreements of the major global powers [5,6]. Local crises, for example, the crisis of the Cypriot banking system in 2012-2013 [7,8] or the Greek external debt crisis of 2015 [9,10], also have a negative impact, therefore, any economy must be resistant to the crisis in some degree for successful development.…”

Section: Introductionmentioning

confidence: 99%

Developing the Expert System for Assessing the Resilience to Crisis of Enterprises with Weak Dynamics

Sedelnikov¹,

Khnyryova²

2020

Proceedings of the International Scientific Conference "Far East Con" (ISCFEC 2020)

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In the last decade there has been considerable interest in the problem of enterprises crisis resolution. It is related to the fact that a number of economic crises hit many countries. This paper presents a new approach to assess the resilience to crisis of enterprises. For this purpose, we propose to develop the traditional expert system. The expert system is based on predicate rules that contain two premises and one logical judgment. We propose to use the integral index of the enterprise non-dynamism and the total number of enterprise employees as input variables. The output variable is a probabilistic assessment of the enterprise crisis resolution. The developed expert system makes it possible to identify the most vulnerable enterprises in a crisis period.

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The Credit Default Swap market contagion during recent crises: international evidence

Cited by 9 publications

References 65 publications

A multicountry measure of comovement and contagion in international markets: definition and applications

A multicountry measure of comovement and contagion in international markets: definition and applications

International risk spillover in sovereign credit markets: an empirical analysis

Developing the Expert System for Assessing the Resilience to Crisis of Enterprises with Weak Dynamics

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