Unveiling trading patterns: iTraxx Europe financials from the great financial crisis to ECB monetary easing

Financial stability is a statutory concern of the European Central Bank. Spreads bank credit default swaps (CDS) indices are reference for financial stability, but literature scarce in this respect. This paper poses novel research question which characteristics investors these derivatives implied by volatility behavior returns CDS indices. Daily spread 5-year maturity iTraxx Europe Financials (subordinated and senior), period between June 2004 March 2015, used to estimate GJR-M model with Student t innovations, two MGARCH models (one constant other dynamic conditional correlations). The results show that index referring subordinated debt risk averse (risk premium 0.688) liable leverage effects, while senior do not have such characteristics. degrees freedom innovations estimated be 4 both indices, implying distributions very fat tails. Population excess kurtosis diverges infinity. correlation dynamic. Although correlations vary widely, most variation occurs before Euro Area crisis. It concluded inclusion portfolio would misadvised bear markets distressed entities: always positive, above 0.75 since 2010. Moreover, prove sensitive varying surrounding conditions as share market sentiments. AcknowledgmentsNECE’s funded national funds through FCT – Fundação para Ciência e Tecnologia, I.P., Project UIDB/04630/2020CEBER’s UIDB/05037/2020