{"title":"The sovereign Credit Default Swap Spreads and Chinese Sectors Stock Market: A Causality in Quantile and Dependence Analysis","authors":"Huthaifa Alqaralleh","doi":"10.1007/s10690-023-09433-8","DOIUrl":null,"url":null,"abstract":"<div><p>This study established the direction, magnitude, and duration of the causality between CDS and selected Chinese stock sector at industry level. A nonparametric causality-in-quantile test and a CQ correlation test were applied to the data sampling over the daily period January 2, 2019, to January 6, 2023 covering a period marked by global shocks, including the outbreak of COVID-19 and Russia–Ukraine conflict. The empirical results reveal that CDS advances to play its economic role as a risk transfer, and to effectively predict the returns of sectors stock under bad market conditions. Moreover, the time-varying CQ correlations suggest that such amplified connectedness could be driven by extreme market circumstances in both the upper and lower quantiles. The findings provide important recommendations for investors, regulatory authorities, and policymakers to understand the pivotal roles of market sentiments in inducing co-movement between sovereign CDS spreads and selected Chinese stock sector.</p></div>","PeriodicalId":54095,"journal":{"name":"Asia-Pacific Financial Markets","volume":"31 4","pages":"845 - 866"},"PeriodicalIF":2.5000,"publicationDate":"2023-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Asia-Pacific Financial Markets","FirstCategoryId":"1085","ListUrlMain":"https://link.springer.com/article/10.1007/s10690-023-09433-8","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
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Abstract
This study established the direction, magnitude, and duration of the causality between CDS and selected Chinese stock sector at industry level. A nonparametric causality-in-quantile test and a CQ correlation test were applied to the data sampling over the daily period January 2, 2019, to January 6, 2023 covering a period marked by global shocks, including the outbreak of COVID-19 and Russia–Ukraine conflict. The empirical results reveal that CDS advances to play its economic role as a risk transfer, and to effectively predict the returns of sectors stock under bad market conditions. Moreover, the time-varying CQ correlations suggest that such amplified connectedness could be driven by extreme market circumstances in both the upper and lower quantiles. The findings provide important recommendations for investors, regulatory authorities, and policymakers to understand the pivotal roles of market sentiments in inducing co-movement between sovereign CDS spreads and selected Chinese stock sector.
期刊介绍：
The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering.
Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome.
Officially cited as: Asia-Pac Financ Markets
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