An empirical analysis of the dynamic dependences in the European Corporate credit markets : bonds vs. credit derivatives

摘要

In this paper we provide new evidence on the determinants of credit spread returns and their dynamicdependences in three European corporate credit markets: the Bond market (cash market), the CreditDefault Swap (CDS) market (derivatives market), and the Asset Swap Package (ASP) market (withproperties of both derivatives and cash markets). Using daily data from 2005 to 2009, we find thatcredit spread returns are primarily driven by innovations and to a lower extent by changes in theexpected loss component, the risk premium component, the liquidity premium component and theinertial component whose relative importance changes over time. The intra-market dependence duringthe current crisis decreases for bonds and ASP innovations but increases slightly for CDS. ASP andbond innovations are closely related, suggesting that the cash component dominates the ASPinnovations’ behavior. On the other hand CDS’s innovations are unrelated with both the bonds’ andthe ASP’s innovations, suggesting that the derivatives element in the ASP contract (due to the implicitinterest rate swap) is essentially unrelated with the innovations in the pure credit derivative contract(CDS).