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International Credit Default Swaps Market During European Crisis: A Markov Switching Approach

In: Global Financial Crisis and Its Ramifications on Capital Markets

Author

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  • Ayben Koy

    (Istanbul Commerce University)

Abstract

This study investigates whether nonlinear relationship resulted from mutual regime switching mechanism exists in the European CDS’s markets during crisis. Multivariate Markov Switching Autoregressive Model that captures the switching mechanism is used. We analyzed the daily CDS spreads of Ireland, Italy, Portugal and Spain those most affected in European Debt Crisis. The data used in this study, belongs to the time period including 2010 and 2014 (1241 observations). The model have got three different regimes as depression, moderate growth and expansion. The results of the tests indicate that (1) CDS markets are governed by a long run relation, (2) volatility have an importance role in determining the regimes, (3) the shocks that applied to Italy and Spain are more effective than others, (4) Portugal is the more affected country between all, (5) the biggest response to the shocks are in the third regime.

Suggested Citation

  • Ayben Koy, 2017. "International Credit Default Swaps Market During European Crisis: A Markov Switching Approach," Contributions to Economics, in: Ümit Hacioğlu & Hasan Dinçer (ed.), Global Financial Crisis and Its Ramifications on Capital Markets, pages 431-443, Springer.
    • Handle: RePEc:spr:conchp:978-3-319-47021-4_30
    DOI: 10.1007/978-3-319-47021-4_30
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    Cited by:

    1. Saker Sabkha & Christian Peretti & Dorra Hmaied, 2019. "The Credit Default Swap market contagion during recent crises: international evidence," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 1-46, July.
    2. Samet Gunay & Bojan Georgievski, 2018. "Effectiveness of Interest Rate Policy of the Fed in Management of Subprime Mortgage Crisis," JRFM, MDPI, vol. 11(1), pages 1-11, February.
    3. Ayben Koy, 2017. "Modelling Nonlinear Dynamics of Oil Futures Market," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 2(1), pages 23-42, June.

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