This paper examines risk transmission and migration among six US measures of credit and market risk during the full period 2004-2011 period and the 2009-2011 recovery subperiod, with a focus on four sectors related to the highly volatile oil price. There are more long-run equilibrium risk relationships and short-run causal relationships among the four oil-related Credit Default Swaps (CDS) indexes, the (expected equity volatility) VIX index and the (swaption expected volatility) SMOVE index for the full period than for the recovery subperiod. The auto sector CDS spread is the most error-correcting in the long run and also leads in the risk discovery process in the short run. On the other hand, the CDS spread of the highly regulated, natural monopoly utility sector does not error correct. The four oil-related CDS spread indexes are responsive to VIX in the short- and long-run, while no index is sensitive to SMOVE which, in turn, unilaterally assembles risk migration from VIX. The 2007-2008 Great Recession seems to have led to “localization” and less migration of credit and market risk in the oil-related sectors.

Additional Metadata
Keywords MOVE, SMOVE, VIX, adjustments, risk,, sectoral CDS
JEL Estimation (jel C13), Time-Series Models; Dynamic Quantile Regressions (jel C22), General Financial Markets (jel G1), Asset Pricing (jel G12), Energy: General (jel Q40)
Publisher Erasmus School of Economics
Persistent URL hdl.handle.net/1765/23120
Series Econometric Institute Research Papers
Journal Report / Econometric Institute, Erasmus University Rotterdam
Citation
Hammoudeh, S.M, Liu, T, Chang, C-L, & McAleer, M.J. (2011). Risk Spillovers in Oil-Related CDS, Stock and Credit Markets (No. EI 2011-15). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–41). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/23120