Global risk spillover and the predictability of sovereign CDS spread: International evidence

Sasha Srivastava, Hai Lin, Inguruwatte M. Premachandra and Helen Roberts

International Review of Economics & Finance, 2016, vol. 41, issue C, 371-390

Abstract: Using an error correction model, we document strong evidence of Granger causality in mean from the S&P option market to the sovereign CDS market in 98% of the 56 sovereigns we investigate. Tests under conditional heteroskedasticity provide further evidence of the risk spillover effect from the S&P index option market to the CDS market in mean, variance, and value-at-risk. The strong spillover effect during the recent financial crisis implies that global shocks first affect the S&P option market and then spill over to the sovereign CDS market. We demonstrate that our results are quite robust.

Keywords: Spillover; Contagion; Sovereign CDS; Granger causality; Out-of-sample forecast (search for similar items in EconPapers)
JEL-codes: G1 G14 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:41:y:2016:i:c:p:371-390

DOI: 10.1016/j.iref.2015.10.047

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