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The integration of the credit default swap markets during the US subprime crisis: Dynamic correlation analysis

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  • Wang, Ping
  • Moore, Tomoe

Abstract

This paper investigates the integration of the credit default swap (CDS) markets of 38 developed and emerging countries with the US market during the subprime crisis period by utilising dynamic conditional correlation from the multivariate GARCH model. Evidence reveals that the Lehman shock seems to have strengthened the integration, in particular, for developed markets. For both developed and emerging markets, declining US interest rates are found to be the main driving factor behind the higher level of correlation, suggesting that the CDS markets were heavily driven by the world largest economy when the crisis reached its peak.

Suggested Citation

  • Wang, Ping & Moore, Tomoe, 2012. "The integration of the credit default swap markets during the US subprime crisis: Dynamic correlation analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 1-15.
    • Handle: RePEc:eee:intfin:v:22:y:2012:i:1:p:1-15
    DOI: 10.1016/j.intfin.2011.07.001
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    More about this item

    Keywords

    Credit default swap; Time-varying correlation; GARCH; Credit market integration;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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