CEPII, Recherche et Expertise sur l'economie mondiale
Contagion in the Credit Default Swap Market: the case of the GM and Ford Crisis in 2005

Virginie Coudert
Mathieu Gex

 Highlights :

 Abstract :
Has the General Motors (GM) and Ford crisis in 2005 spread to the whole credit default swap (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 show that correlations significantly increased during the crisis, especially in the first week. We also test the links between markets at the firm level, using VECM and VAR models. The lead of the CDS market over the bond market appears to have weakened during the crisis. The links with the equity market were also mitigated.

 Keywords : Credit Default Swap | Bond | Equity | Correlation | Contagion

 JEL : C32, G15
CEPII Working Paper
N°2008-14, September 2008

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 Fields of expertise

Money & Finance