Economics Working Paper 2009-5: Correlation in Credit Risk
نویسندگان
چکیده
We examine the correlation in credit risk using credit default swap (CDS) data. We find that the observable risk factors at the firm, industry, and market levels and the macroeconomic variables cannot fully explain the correlation in CDS spread changes, leaving at least 30 percent of the correlation unaccounted for. This finding suggests that contagion is not only statistically but also economically significant in causing correlation in credit risk. Thus, it is important to incorporate an unobservable risk factor into credit risk models in future research. We also find, consistent with some theoretical predictions, that the correlation is countercyclical and is higher among firms with low credit ratings than among firms with high credit ratings.
منابع مشابه
The Resilience of the Iranian Banking System to Macro Shocks with an Emphasis on Credit Risk
In this paper, we present the macro stress test with a credit risk approach for banking system of Iran during the period 2004Q1-2019Q4. The goal is to evaluate the vulnerability of the banking system through credit risk to the country economic shocks. In this regard, the developed method of Wilson (1997) Credit Portfolio View model including macroeconomic variables and default rate has been use...
متن کاملCredit Risk Measurement of Trusted Customers Using Logistic Regression and Neural Networks
The issue of credit risk and deferred bank claims is one of the sensitive issues of banking industry, which can be considered as the main cause of bank failures. In recent years, the economic slowdown accompanied by inflation in Iran has led to an increase in deferred bank claims that could put the country's banking system in serious trouble. Accordingly, the current paper presents a prediction...
متن کاملThe Mutual Impact of Credit Risk and Bank Stability in Iranian and West Asian Banks
Banks play an important role in the country's economy, so increasing bank’s financial stability through the management of financial risks, including credit risk, is one of the most important factors in maintaining the stability of the economy. The mutual effect of credit risk and banking stability in 14 Iranian and 13 West Asian banks in period of 2012-2018 has been studied in this research usi...
متن کاملAssessing Portfolio Credit risk ChAnges in A sAmPle of eU lArge And ComPlex BAnking groUPs in reACtion to mACroeConomiC shoCks
In terms of regulatory and economic capital, credit risk is the most signi cant risk faced by banks. We implement a credit risk model based on publicly available information with the aim of developing a tool to monitor credit risk in a sample of large and complex banking groups (LCBGs) in the EU. The results indicate varying credit risk pro les across these LCBGs and over time. Furthermore, ...
متن کاملThe Role of Credit in a Keynesian Monetary Economy the Role of Credit in a Keynesian Monetary Economy
These Working papers collect the work of the Faculty of Economics of the University of Insubria. The publication of work by other Authors can be proposed by a member of the Faculty, provided that the paper has been presented in public. The name of the proposer is reported in a footnote. The views expressed in the Working papers reflect the opinions of the Authors only, and not necessarily the o...
متن کامل