Contagion inside the credit default swaps market: The case of the GM and Ford crisis in 2005

Journal of International Financial Markets, Institutions and Money, 2010, vol. 20, issue 2, 109-134

Abstract: We study the General Motors (GM) and Ford crisis in 2005 in order to determine if the credit default swap (CDS) market is subject to contagion effects. Has the crisis spread to the whole (CDS) market? To answer this question, we study the correlations between CDS premia, by using a sample of 226 CDSs on major US and European firms. We do evidence a significant rise in correlations during the crisis episode, but little "shift-contagion" as defined by Forbes and Rigobon (2002). When using dynamic measures of correlations (EWMA and DCC-GARCH), we also show that correlations significantly increased during the crisis, especially in the first week.

Keywords: Credit; default; swaps; Correlation; Contagion (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:20:y:2010:i:2:p:109-134

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