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The behavior of Credit Default Swaps

Eklund, Erik LU (2013) NEKN01 20131
Department of Economics
Abstract
Credit Default Swaps (CDS) have been subject to criticism since the break out of the economic turmoil in 2008, triggered by a weak housing market in the USA and the default of the investment bank Lehman Brothers. This essay analyses the relationship between the variance in Swedish stock market and CDS market during 2004 - 2009. The results indicate a negative relationship between the movements in stock price and movements in CDS-spread. Evidence of volatility clusters, ARCH-effects, is found and further test on conditional vari- ance indicate negative news has a higher impact on future variance in spread than positive, which also increase by the magnitude of shock. Variance in stock price partly explains variance in spread for most of the... (More)
Credit Default Swaps (CDS) have been subject to criticism since the break out of the economic turmoil in 2008, triggered by a weak housing market in the USA and the default of the investment bank Lehman Brothers. This essay analyses the relationship between the variance in Swedish stock market and CDS market during 2004 - 2009. The results indicate a negative relationship between the movements in stock price and movements in CDS-spread. Evidence of volatility clusters, ARCH-effects, is found and further test on conditional vari- ance indicate negative news has a higher impact on future variance in spread than positive, which also increase by the magnitude of shock. Variance in stock price partly explains variance in spread for most of the companies. (Less)
Please use this url to cite or link to this publication:
author
Eklund, Erik LU
supervisor
organization
course
NEKN01 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Credit default swap, Conditional variance, News impact asymmetry, Market correlation, Regression analysis, ARCH, EGARCH
language
English
id
4178763
date added to LUP
2013-12-03 08:06:37
date last changed
2013-12-03 08:06:37
@misc{4178763,
  abstract     = {Credit Default Swaps (CDS) have been subject to criticism since the break out of the economic turmoil in 2008, triggered by a weak housing market in the USA and the default of the investment bank Lehman Brothers. This essay analyses the relationship between the variance in Swedish stock market and CDS market during 2004 - 2009. The results indicate a negative relationship between the movements in stock price and movements in CDS-spread. Evidence of volatility clusters, ARCH-effects, is found and further test on conditional vari- ance indicate negative news has a higher impact on future variance in spread than positive, which also increase by the magnitude of shock. Variance in stock price partly explains variance in spread for most of the companies.},
  author       = {Eklund, Erik},
  keyword      = {Credit default swap,Conditional variance,News impact asymmetry,Market correlation,Regression analysis,ARCH,EGARCH},
  language     = {eng},
  note         = {Student Paper},
  title        = {The behavior of Credit Default Swaps},
  year         = {2013},
}