The effect of the subprime crisis on the credit risk in global scale

Sangwook Lee, Min Jae Kim, Sun Young Lee, Soo Yong Kim and Joon Hwa Ban

Physica A: Statistical Mechanics and its Applications, 2013, vol. 392, issue 9, 2060-2071

Abstract: Credit default swap (CDS) has become one of the most actively traded credit derivatives, and its importance in finance markets has increased after the subprime crisis. In this study, we analyzed the correlation structure of credit risks embedded in CDS and the influence of the subprime crisis on this topological space. We found that the correlation was stronger in the cluster constructed according to the location of the CDS reference companies than in the one constructed according to their industries. The correlation both within a given cluster and between different clusters became significantly stronger after the subprime crisis. The causality test shows that the lead lag effect between the portfolios (into which reference companies are grouped by the continent where each of them is located) is reversed in direction because the portion of non-investable and investable reference companies in each portfolio has changed since then. The effect of a single impulse has increased and the response time relaxation has become prolonged after the crisis as well.

Keywords: Credit default swap; Network analysis; Vector autoregressive model (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:392:y:2013:i:9:p:2060-2071

DOI: 10.1016/j.physa.2012.12.027

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