Digital economy era: the role of the telecommunications sector in frequency-dependent default risk connectedness

Shimeng Shi, Pei Liu and Jiayuan Xin

Quantitative Finance, 2020, vol. 20, issue 12, 2085-2100

Abstract: We use frequency-dependent connectedness measures to study the role played by the telecommunications (telecoms) sector in sectoral default risk connectedness at three frequency bands, i.e. the short-, medium-, and long-term financial cycles. We extend credit risk spillovers analysis from the time domain to the frequency domain. Our findings indicate that investors in the global CDS sector index market have different investment horizons, but they prefer to process default risk information mainly within one week. In the within-region analysis, except for North America, the telecoms sector plays a significant role in transmitting net credit risk to the other sectors, especially in the short-term financial cycle. In the cross-region analysis, the European telecoms sector is the major net default risk transmitter on all three frequency bands. Our study has noteworthy empirical implications for consumption-based asset pricing models, cross-sector credit risk connectivity, and regional financial stability.

Date: 2020
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DOI: 10.1080/14697688.2020.1814038

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