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Interdependence and contagion among industry-level US credit markets: An application of wavelet and VMD based copula approaches

Syed Jawad Hussain Shahzad (), Safwan Mohd Nor, Ronald Kumar () and Walid Mensi

Physica A: Statistical Mechanics and its Applications, 2017, vol. 466, issue C, 310-324

Abstract: This study examines the interdependence and contagion among US industry-level credit markets. We use daily data of 11 industries from 17 December 2007 to 31 December 2014 for the time–frequency, namely, wavelet squared coherence analysis. The empirical analysis reveals that Basic Materials (Utilities) industry credit market has the highest (lowest) interdependence with other industries. Basic Materials credit market passes cyclical effect to all other industries. The little “shift-contagion” as defined by Forbes and Rigobon (2002) is examined using elliptical and Archimedean copulas on the short-run decomposed series obtained through Variational Mode Decomposition (VMD). The contagion effects between US industry-level credit markets mainly occurred during the global financial crisis of 2007–08.

Keywords: Credit default swap; Contagion; Wavelet squared coherence; Variational mode decomposition; Copula (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:phsmap:v:466:y:2017:i:c:p:310-324