The focus of this work is to investigate the ability of fluctuations in CDS indexes in predicting the outbreak of stock market crises. The main goal is to show that CDS indexes may provide investors and institutions with early warning signals of financial distresses in the stock market. In this paper, we apply a Markov switching model with states characterized by increasing levels of volatility and compare the time in which the first switch in a high volatility state occurs, respectively, in the CDS and in the stock market index quotes.
The signaling power of CDS indexes
CASTELLANO, Rosella;SCACCIA, LUISA
2014-01-01
Abstract
The focus of this work is to investigate the ability of fluctuations in CDS indexes in predicting the outbreak of stock market crises. The main goal is to show that CDS indexes may provide investors and institutions with early warning signals of financial distresses in the stock market. In this paper, we apply a Markov switching model with states characterized by increasing levels of volatility and compare the time in which the first switch in a high volatility state occurs, respectively, in the CDS and in the stock market index quotes.File in questo prodotto:
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Castellano_signaling-power-CDS_2014.pdf
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