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Linkages between Financial Sector CDS Spreads and Macroeconomic Influence in a Nonlinear Setting

Amine Lahiani, Shawkat Hammoudeh and Rangan Gupta ()

No 201456, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the asymmetric and nonlinear transmission of financial and energy prices to US five-year financial CDS sector index spreads for the banking, financial services and insurance sectors in the short- and long-run over the recent periods including the world financial crisis. We employ the nonlinear ARDL model (NARDL) to account for the shortand long-run asymmetries in the sensitivity of CDS sector index spreads to their determinants. Our findings suggest that there is evidence of short- and long-run nonlinearities and asymmetries in the adjustment process of the three CDS variables. There are also short- and long run asymmetries in the influences of macroeconomic and financial variables on the CDS sector sreads These findings are important for policy-makers who deal credit risks at sector levels.

Keywords: Sector CDS; Financial crisis; Asymmetric adjustments; NARDL model (search for similar items in EconPapers)
JEL-codes: C32 F65 G01 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-10
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Journal Article: Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting (2016) Downloads
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