Asymmetric determinants of CDS spreads: U.S. industry-level evidence through the NARDL approach

Syed Jawad Hussain Shahzad, Safwan Mohd Nor, Roman Ferrer and Shawkat Hammoudeh

Economic Modelling, 2017, vol. 60, issue C, 211-230

Abstract: This paper investigates the presence of asymmetries in the short- and long-run relationships between the 5-year CDS index spreads at the U.S. industry level and a set of major macroeconomic and financial variables, namely the corresponding industry stock indices, the VIX index, the 5-year Treasury bond yield and the crude oil price, using the NARDL approach. The empirical results provide significant evidence of both short-run and long-run asymmetries in the linkage between ten industry CDS spreads and the potential driving factors common for all industries, confirming the importance of asymmetric nonlinearity in this context. It is also shown that the industry equity prices, the VIX, the 5-year Treasury bond rate and, to a lesser extent, the crude oil price constitute important asymmetric determinants of these U.S. industry CDS spreads. The findings of this study have relevant implications for investors, speculators, arbitrageurs and policy makers interested in credit risk at the industry level.

Keywords: C32; E52; F65; G01; Industry CDS index spreads; Asymmetries; Cointegration; NARDL model (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:60:y:2017:i:c:p:211-230

DOI: 10.1016/j.econmod.2016.09.003

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