The co-movement of credit default swap, bond and stock markets: An empirical analysis

European Financial Management

Volumn 15, Issue 3, 2009, Pages 529-562

  Norden, Lars ^a,b   Weber, Martin ^a,b  

^a UNIVERSITY OF MANNHEIM   (Germany)

^b CEPR   (United Kingdom)

Author keywords

Credit derivatives; Credit risk; Credit spreads; Lead lag relationship

Indexed keywords

EID: 66249142320     PISSN: 13547798     EISSN: 1468036X     Source Type: Journal    
DOI: 10.1111/j.1468-036X.2007.00427.x     Document Type: Article

References (31)

1. Alexander, G. J., Edwards, A. K. and Ferri, M. G. What does Nasdaq's High-Yield bond market reveal about bondholder-stockholder conflicts Financial Management, Vol. 29, 2000, pp. 23 39.
2. Amato, J. D. Risk aversion and risk premia in the CDS market BIS Quarterly Review, December 2005, pp. 55 68.
3. Aunon-Nerin, D., Cossin, D., Hricko, T. and Huang, Z. Exploring for the determinants of credit risk in credit default swap transaction data: is fixed-income markets' information sufficient to evaluate credit risk Research Paper No. 65 (International Center for Financial Asset Management and Engineering, 2002).
4. Avramov, D., Jostova, G. and Philipov, A. Corporate credit risk changes: common factors and firm-level fundamentals Working Paper (University of Maryland, 2004).
5. Bank for International Settlements Credit risk transfer. Committee on the Global Financial System Working Paper, 2003.
6. Basel Committee on Banking Supervision International convergence of capital measurement and capital standards - a revised framework 2004.
7. Berndt, A., Douglas, R., Duffie, D., Ferguson, M. and Schranz, D. Measuring default risk premia from default swap rates and EDFs Working Paper (Stanford University, 2005).
8. Blanco, R., Brennan, S. and Marsh, I. W. An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps Journal of Finance, Vol. 60, 2005, pp. 2255 81.
9. Blume, M. E., Keim, D. B. and Patel, S. A. Returns and volatility of low-grade bonds 1977-1989 Journal of Finance, Vol. 46, 1991, pp. 49 74.
10. British Bankers' Association BBA Credit Derivatives Report 2003-2004 2004.
11. Bühler, W. and Trapp, M. A credit risk model with liquidity in CDS and bond markets Working Paper (University of Mannheim, 2005).
12. Collin-Dufresne, P., Goldstein, R. S. and Martin, J. S. The determinants of credit spread changes Journal of Finance, Vol. 56, 2001, pp. 2177 2207. (Pubitemid 33585019)
13. Cornell, B. and Green, K. The investment performance of low-grade bond funds Journal of Finance, Vol. 46, 1991, pp. 29 48.
14. Deutsche Bundesbank Credit risk transfer instruments: their use by German banks and aspects of financial stability Monthly Report, April, 2004, pp. 27 45.
15. Engle, R. F. and Granger, C. W. J. Co-integration and error correction: representation, estimation, and testing Econometrica, Vol. 55, 1987, pp. 251 76.
16. Engsted, T. and Tanggaard, C. The comovement of US and UK stock markets European Financial Management, Vol. 10, 2004, pp. 593 607.
17. European Central Bank Credit risk transfer by EU banks: activities, risks and risk management 2004.
18. Fama, E. F. and French, K. R. Common risk factors in the returns on stocks and bonds Journal of Financial Economics, Vol. 33, 1993, pp. 3 56.
19. Fitch Ratings Global credit derivatives: a qualified success Special Report, September, 2003.
20. Gonzalo, J. and Granger, C. W. J. Estimation of common long-memory components in cointegrated systems Journal of Business and Economic Statistics, Vol. 13, 1995, pp. 27 35.
21. Granger, C. W. J. Investigating causal relations by econometric models and cross-spectral methods Econometrica, Vol. 37, 1969, pp. 424 38.
22. Hotchkiss, E. S. and Ronen, T. The informational efficiency of the corporate bond market: an intraday analysis Review of Financial Studies, Vol. 15, 2002, pp. 1325 54.
23. Houweling, P. and Vorst, T. Pricing default swaps: empirical evidence Journal of International Money and Finance, Vol. 24, 2005, pp. 1200 25.
24. Hull, J. C., Predescu, M. and White, A. The relationship between credit default swap spreads, bond yields, and credit rating announcements Journal of Banking and Finance, Vol. 28, 2004, pp. 2789 2811. (Pubitemid 39305400)
25. Hunter, D. and Simon, D. A conditional assessment of the relationships between the major world bond markets European Financial Management, Vol. 11, 2005, pp. 463 82.
26. Kwan, S. H. Firm-specific information and the correlation between individual stocks and bonds Journal of Financial Economics, Vol. 40, 1996, pp. 63 80. (Pubitemid 126169088)
27. Longstaff, F. A., Mithal, S. and Neis, E. The credit-default swap market: is credit protection priced correctly Working Paper (University of California at Los Angeles, 2003).
28. Longstaff, F. A., Mithal, S. and Neis, E. Corporate yield spreads: default risk or liquidity New evidence from the credit-default swap market Journal of Finance, Vol. 60, 2005, pp. 2213 53.
29. Norden, L. and Weber, M. Informational efficiency of credit default swap and stock markets: the impact of credit rating announcements Journal of Banking and Finance, Vol. 28, 2004, pp. 2813 43.
30. O'Kane, D. and McAdie, R. Explaining the basis: cash versus default swaps Lehman Brothers, May, 2001.
31. Zhu, H. An empirical comparison of credit spreads between the bond market and the credit default swap market Journal of Financial Services Research, Vol. 29, 2006, pp. 211 35.