Regime dependent causality: equity and credit markets

Ramaprasad Bhar, David B. Colwell and Peipei Wang

International Journal of Financial Markets and Derivatives, 2012, vol. 3, issue 1, 36-44

Abstract: We apply a Markov switching model to investigate the possibility of an asymmetric causal relationship between the volatility process inferred from the iTraxx CDS options market and the implied volatility from the stock index options market. We find strong evidence that the stock market leads the CDS market and the effect of the implied stock market volatility is more significant during the volatile regime. We also find that a large jump in the stock return, up or down, may indeed be followed by a regime shift.

Keywords: regime dependence; credit default swaps; CDS options; equity; implied volatility; credit markets; Markov switching model; stock market volatility. (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.inderscience.com/link.php?id=53326 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijfmkd:v:3:y:2012:i:1:p:36-44

Access Statistics for this article

More articles in International Journal of Financial Markets and Derivatives from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().