The Volatility Spillover Effects Among Six Major Asian Sovereign CDS Markets
The Volatility Spillover Effects Among Six Major Asian Sovereign CDS Markets

Author(s): Hüseyin Özdemir
Subject(s): Economic history, Transformation Period (1990 - 2010), Present Times (2010 - today), Financial Markets
Published by: Özgür Yayın Dağıtım Ltd. Şti.
Keywords: CDS market; Asia; volatility spillover;
Summary/Abstract: This study examines the volatility spillover indexes among the 5-year maturity credit default swaps of six major Asian countries (China, Indonesia, Korea, Malaysia, Thailand, and Vietnam) from June 2008 to August 2022. We find that China, Indonesia, and Vietnam are net receivers of the spillovers, whereas South Korea, Malaysia, and Thailand are net transmitters of volatility in the Asian CDS market. Further, the total volatility spillover index is around 79%, suggesting a very high level of connectedness among these Asian CDS markets and implying high systemic risk among markets. Moreover, our empirical finding provides strong evidence that the total spillover index can be used as an early warning of the rise of uncertainty in South Korea and China, especially during crisis periods. The fact that volatility can be transmitted between CDS markets shows that an increase in volatility in one credit swap market is a clear sign of an increase in volatility in other sovereign CDS markets.

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