CDS and Stock Market: Panel Evidence Under Cross-Section Dependency

Sinan Esen, Feyyaz Zeren and Halil Şimdi
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Sinan Esen: Sakarya University
Feyyaz Zeren: Namik Kemal University
Halil Şimdi: Sakarya University

South-Eastern Europe Journal of Economics, 2015, vol. 13, issue 1, 31-46

Abstract: In recent years, the spreads of CDS that are crucial aspects in detecting the financial risk level of countries have been taken more notice of by investors. In this paper, we investigate the relation between CDS spreads and countries' stock indices by using Basher and Westerlund (2009) panel cointegration and Dumitrescu-Hurlin (2012) panel causality tests. Causality from stock market to CDS figures has been detected by the Sequential Panel Selection Method (SPSM) of Chortareas and Kapetanios (2009) for 7 out of 13 G20 countries. Additionally, the study finds a negative correlation between variables with the usage of Common Correlated Effects (CCE) estimator. The positive increasing trend in stock markets causes a decrease in the financial risks that naturally allow low CDS spreads.

Keywords: CDS Spread; Stock Market; Panel Cointegration; Panel Causality; Cross-Section Dependency (search for similar items in EconPapers)
JEL-codes: C33 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:seb:journl:v:13:y:2015:i:1:p:31-46

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