Search results for "Credit default swap"
showing 8 items of 18 documents
Financial Sector Reform After the Subprime Crisis: Has Anything Happened?
2015
We analyze the reactions of stock returns and the spreads of credit default swaps (CDS) of banks from Europe and the USA to four major regulatory reforms in the aftermath of the subprime crisis, employing an event study analysis. Contrary to public perception, we find that financial markets indeed reacted to the structural reforms enacted at the national level. The reforms succeeded in reducing bail-out expectations relative to the post-bail-out period, especially for systemic banks. The strongest effects were found for the Dodd–Frank Act and in particular for the Volcker rule. Bank profitability was affected in all countries, showing up in lower equity returns.
Industry-level determinants of the linkage between credit and stock markets
2018
ABSTRACTThis paper examines the relationship between US credit default swaps (CDS) and stock returns on an industry-wide basis across a number of investment horizons, with particular focus on the m...
A systematic review of sovereign connectedness on emerging economies.
2019
This article systematically reviews the academic literature on emerging market contagion in order to summarize what we have learnt about the transmission channels existing in these countries. Given the large body of academic research focused on this topic, we especially direct our attention to the strand of the literature that defines and empirically analyses this topic as the significant increase in the cross-market correlations between asset returns during crisis periods or when a shock occurs. The survey covers the findings on financial contagion in the stock, bond, exchange and credit default swap markets during a large period that covers several crises that have characterized the relat…
Bank fragility and contagion: Evidence from the bank CDS market
2016
Understanding how contagion works among financial institutions is a top priority for regulators and policy makers who aim to foster financial stability and to prevent financial crises. Using bank credit default swap (CDS) data, we provide a framework for the evaluation of contagion among banks in different countries and regions during a period of prolonged financial distress. We measure contagion in terms of return spillovers, following a Generalized VAR (GVAR) approach. In addition, we propose an innovative framework to distinguish between two types of contagion: systematic (linked to global factors), and idiosyncratic (linked to bank specific factors). We find evidence of both types of co…
Multi-Agent Financial Network (MAFN) Model of US Collateralized Debt Obligations (CDO)
2014
A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports that yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks’ balance sheets and also large counterparty exposures from CDS positions characterized the $2 trillion Collateralized Debt Obligation (CDO) market. The latter imploded at the end of 2007 with large scale systemic risk consequences. Based on US FDIC bank data, that could have been available to the regulator at the time, the authors investigate how a CDS negative carry …
‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk
2012
A small segment of credit default swaps (CDS) on residential mortgage backed securities (RMBS) stand implicated in the 2007 financial crisis. The dominance of a few big players in the chains of insurance and reinsurance for CDS credit risk mitigation for banks' assets has led to the idea of too interconnected to fail (TITF) resulting, as in the case of AIG, of a tax payer bailout. We provide an empirical reconstruction of the US CDS network based on the FDIC Call Reports for off balance sheet bank data for the 4th quarter in 2007 and 2008. The propagation of financial contagion in networks with dense clustering which reflects high concentration or localization of exposures between few parti…
Future directions in international financial integration research - A crowdsourced perspective
2018
This paper is the result of a crowdsourced effort to surface perspectives on the present and future direction of international finance. The authors are researchers in financial economics who attended the INFINITI 2017 conference in the University of Valencia in June 2017 and who participated in the crowdsourcing via the Overleaf platform. This paper highlights the actual state of scientific knowledge in a multitude of fields in finance and proposes different directions for future research.
Why banks are not too big to fail - evidence from the CDS market
2013
This paper argues that bank size is not a satisfactory measure of systemic risk because it neglects aspects such as interconnectedness, correlation, and the economic context. In order to differentiate the effect of bank size from that of systemic importance, we control for systemic risk using the CoVaR measure introduced by Adrian and Brunnermeier (2011). We show that a bank's contribution to systemic risk has a significant negative effect on banks’ credit default swap (CDS) spreads, supporting the too‐systemic‐to‐fail hypothesis. Once we control for systemic risk, bank size (relative to gross domestic product (GDP)) has either no or a positive effect on banks’ CDS spreads. The effect of ba…