Good and bad credit contagion: Evidence from credit default swaps

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• 作者：Philippe Jorion ; Gaiyan Zhang
• 关键词：Credit default swaps ; Bankruptcy ; Contagion ; Market reaction ; Event study
• 刊名：Journal of Financial Economics
• 出版年：2007
• 出版时间：June 2007
• 年：2007
• 卷：84
• 期：3
• 页码：860-883
• 全文大小：235 K

文摘

This study examines the intra-industry information transfer effect of credit events, as captured in the credit default swaps (CDS) and stock markets. Positive correlations across CDS spreads imply that contagion effects dominate, whereas negative correlations indicate competition effects. We find strong evidence of contagion effects for Chapter 11 bankruptcies and competition effects for Chapter 7 bankruptcies. We also introduce a purely unanticipated event, in the form of a large jump in a company's CDS spread, and find that this leads to the strongest evidence of credit contagion across the industry. These results have important implications for the construction of portfolios with credit-sensitive instruments.