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Global risk spillover and the predictability of sovereign CDS spread: International evidence

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journal contribution
posted on 12.05.2022, 04:14 by S Srivastava, Hai LinHai Lin, IM Premachandra, H Roberts
Using an error correction model, we document strong evidence of Granger causality in mean from the S&P option market to the sovereign CDS market in 98% of the 56 sovereigns we investigate. Tests under conditional heteroskedasticity provide further evidence of the risk spillover effect from the S&P index option market to the CDS market in mean, variance, and value-at-risk. The strong spillover effect during the recent financial crisis implies that global shocks first affect the S&P option market and then spill over to the sovereign CDS market. We demonstrate that our results are quite robust.

History

Preferred citation

Srivastava, S., Lin, H., Premachandra, I. M. & Roberts, H. (2016). Global risk spillover and the predictability of sovereign CDS spread: International evidence. International Review of Economics and Finance, 41, 371-390. https://doi.org/10.1016/j.iref.2015.10.047

Journal title

International Review of Economics and Finance

Volume

41

Publication date

01/01/2016

Pagination

371-390

Publication status

Published

Contribution type

Article

Online publication date

05/11/2015

ISSN

1059-0560