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Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

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  • Lahiani, Amine
  • Hammoudeh, Shawkat
  • Gupta, Rangan

Abstract

This paper investigates the asymmetric and nonlinear transmission of financial and energy prices to US five-year financial CDS sector index spreads for the banking, financial services and insurance sectors in the short- and long-run over the recent periods revolving around the global financial crisis. We employ the nonlinear ARDL (NARDL) model to account for the short- and long-run asymmetries in the sensitivity of those CDS sector index spreads to their determinants. Our findings suggest that there is evidence of short- and long-run nonlinearities and asymmetries in the adjustment process of the three CDS variables. There are also short- and long-run asymmetries in the influences of macroeconomic and financial variables on the CDS sector spreads. These findings are important for policymakers who deal with credit risks at the sector levels.

Suggested Citation

  • Lahiani, Amine & Hammoudeh, Shawkat & Gupta, Rangan, 2016. "Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 443-456.
    • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:443-456
    DOI: 10.1016/j.iref.2016.01.007
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    More about this item

    Keywords

    Sector CDS; Financial crisis; Asymmetric adjustments; NARDL model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G01 - Financial Economics - - General - - - Financial Crises

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