Credit Default Swaps and Stock Prices: Further Evidence of Mean and Volatility Transmission using a MVGARCH-M Model

摘要

This paper empirically investigates the association between the stock market and the credit default swap (CDS) market in terms of mean and volatility spillovers. The analysis uses 1,612 daily observations from four stock markets (the US, German, UK and Greek markets) and two European CDS indices, along with the error correction (EC) methodology and the multivariable generalized heteroskedasticity in mean (MVGARCH-M) modelling. We find that stock returns across European and US markets are negatively related to European CDS spread changes, that the CDS market seems to lead the stock market (implying that information contents coming from the firm's environment, first, impacts on the CDS market followed by the stock market), and that stock market volatility has a positive impact on CDS spreads.