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Journal of International Financial Markets Institutions and Money
Article . 2014 . Peer-reviewed
License: Elsevier TDM
Data sources: Crossref
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CDX and iTraxx and their relation to the systemically important financial institutions: Evidence from the 2008–2009 financial crisis

Authors: Calice, G;

CDX and iTraxx and their relation to the systemically important financial institutions: Evidence from the 2008–2009 financial crisis

Abstract

Abstract This paper empirically investigates the linkages between the CDS index market and the equity returns of a sample of systemically important financial institutions (SIFIs). Both the 5-year investment grade iTraxx Europe and the 5-year investment grade CDX North America indexes are adopted as a market consensus of the overall credit risk in the financial system. Through a multivariate VAR model using historical data, the investigation uncovers three key findings. First, the equity returns for all systematically important institutions are inversely associated to shocks in the CDS index market. Second, European institutions demonstrate a stronger connection with the iTraxx whilst the US institutions are more closely related to the CDX. Furthermore, volatility originating in the CDS index market is unambiguously transmitted to both the insurance and the banking sector. Third, US banks are most severely distressed by the volatility transmission mechanism whilst European insurers are least affected.

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Keywords

Credit default swap index; CDX; iTraxx; Systemically important financial; institutions; Financial stability

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citations
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
4
Average
Average
Average
hybrid