Time-varying Co-movements and Contagion Effects in Asian Sovereign CDS Markets

Daehyoung Cho () and Kyongwook Choi ()
Additional contact information
Daehyoung Cho: National Assembly Research Service
Kyongwook Choi: University of Seoul

East Asian Economic Review, 2015, vol. 19, issue 4, 357-379

Abstract: We investigate interconnectedness and the contagion effect of default risk in Asian sovereign CDS markets since the global financial crisis. Using dynamic conditional correlation analysis, we find that there are significant co-movements in Asian sovereign CDS markets; that such co-movements tend to be larger between developing countries than between developed and developing countries; and that in the co- movements intra-regional nature is stronger than inter-regional nature. With the Spillover Index model, we measure contagion probabilities of sovereign default risk in CDS markets of seven Asian countries and find evidence of contagion effects among six of them; Japan is the exception. In addition, we find that these six countries are affected more by cross-market spillovers than by their own-market spillovers. Furthermore, a rolling-sample analysis reveals that contagion in the Asian sovereign CDS markets expands during episodes of extreme economic and financial distress, such as the Lehman Brothers bankruptcy, the European financial crisis, and the US-credit downgrade.

Keywords: Sovereign Credit Default Swap; Co-movement; Dynamic Conditional Correlation; Generalized Variance Decomposition; Spillover Index (search for similar items in EconPapers)
JEL-codes: C32 F30 G15 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.11644/KIEP.JEAI.2015.19.4.301 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0020

Access Statistics for this article

East Asian Economic Review is currently edited by JE Lee

More articles in East Asian Economic Review from Korea Institute for International Economic Policy [30147] 3rd Floor Building C Sejong National Research Complex 370 Sicheong-daero Sejong-si, Korea. Contact information at EDIRC.
Bibliographic data for series maintained by JE Lee ().