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Time-varying co-movements and volatility spillovers among financial sector CDS indexes in the UK

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  • Tamakoshi, Go
  • Hamori, Shigeyuki

Abstract

This article investigates co-movements and volatility spillovers between the three UK financial sector CDS indexes over time. We find sharp increases in the dynamic conditional correlations for all pairs after the Lehman shock, indicating evidence of contagion, and decreases for two pairs (banking-life insurance and life insurance-other financial) after the zenith of the European debt crisis, implying the emergence of diversification opportunities. Dynamic spillover index measures suggest that, although the banking sector was a dominant net transmitter of volatility, other financial sectors also became net transmitters for some periods, highlighting the importance of appropriate regulation of these two sector areas.

Suggested Citation

  • Tamakoshi, Go & Hamori, Shigeyuki, 2016. "Time-varying co-movements and volatility spillovers among financial sector CDS indexes in the UK," Research in International Business and Finance, Elsevier, vol. 36(C), pages 288-296.
    • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:288-296
    DOI: 10.1016/j.ribaf.2015.09.027
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    3. Saker Sabkha & Christian de Peretti & Dorra Mezzez Hmaied, 2019. "International risk spillover in the sovereign credit markets: An empirical analysis," Post-Print hal-01652526, HAL.
    4. Li, Leon, 2017. "Dynamic correlations and domestic-global diversification," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 280-290.
    5. Saker Sabkha & Christian de Peretti & Dorra Hmaied, 2017. "International risk spillover in the sovereign credit markets: An empirical analysis," Working Papers hal-01652526, HAL.
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    7. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2021. "Volatility spillovers during market supply shocks: The case of negative oil prices," Resources Policy, Elsevier, vol. 74(C).
    8. Moutsianas, Konstantinos A. & Kosmidou, Kyriaki, 2016. "Bank earnings volatility in the UK: Does size matter? A comparison between commercial and investment banks," Research in International Business and Finance, Elsevier, vol. 38(C), pages 137-150.
    9. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Ozdemir, Huseyin & Wohar, Mark E., 2020. "Spillover effects in oil-related CDS markets during and after the sub-prime crisis," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    10. Ahmad, Wasim & Sharma, Sumit Kumar, 2018. "Testing output gap and economic uncertainty as an explicator of stock market returns," Research in International Business and Finance, Elsevier, vol. 45(C), pages 293-306.
    11. Alexakis, Christos & Pappas, Vasileios, 2018. "Sectoral dynamics of financial contagion in Europe - The cases of the recent crises episodes," Economic Modelling, Elsevier, vol. 73(C), pages 222-239.
    12. Yu, Sherry, 2017. "Sovereign and bank Interdependencies—Evidence from the CDS market," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 68-84.
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    14. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2021. "An analysis of investor behaviour and information flows surrounding the negative WTI oil price futures event," Energy Economics, Elsevier, vol. 104(C).

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    More about this item

    Keywords

    Financial sector CDS; Dynamic conditional correlation; Volatility spillover; European sovereign debt crisis; Contagion;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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