We provide a shrinkage type methodology which allows for simultaneous model selection and estimation of vector error correction models (VECM) when the dimension is large and can increase with sample size. Model determination is treated as a joint selection problem of cointegrating rank and...

We study the impact of changes in regulations and policy interventions on systemic risk among European sovereigns measured as volatility spillovers in respective credit risk markets. Our unique intraday CDS dataset allows for precise measurement of the effectiveness of these events in a network...

The Volkswagen emissions scandal is by far the largest case of emissions cheating in automotive history and had wide-reaching consequences for the industry throughout the world. This study examines the spillover effects to competitors and suppliers following Volkswagen's public admission of...

We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect...

We examine the predictive power of the CDS-bond basis for future corporate bond returns. We find that residual basis, the part of the CDS-bond basis that cannot be explained by a wide range of market frictions such as counterparty risk, funding risk, and liquidity risk, strongly negatively...

We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before...

This paper examines the impact of sovereign credit rating change announcements on the CDS spreads of the event countries, and their spillover effects on other emerging economies' CDS premiums. In contrast to previous work, we find that positive events have a more consistent impact on sovereign...

We find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence...