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Journal article
Directional and bidirectional causality between U.S. industry credit and stock markets and their determinants
International review of economics & finance, v 47
Jan 2017
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Abstract
We examine the causal links between U.S. industry-wise credits and stock markets. The full sample bootstrap Granger causality results show that all stock markets Granger cause their CDS counterparts and there is also bidirectional causality for the banking, healthcare and material industries. The short-run parametric stability tests highlight that the full sample parameters are not stable and hence less reliable. The bootstrap rolling window estimations confirm the inconsistency in the CDS-stock causality relationships where bidirectional causalities are also found between the credit and stock markets that vary over different sub-samples. Finally, we analyze the impact of different financial and macroeconomic determinants on the CDS-stock causality through a probit model. Overall, the business conditions, stock market volatility, default premiums, Treasury bond rate and the slope of the yield curve are major drivers of the CDS-stock nexus. Our findings provide possible explanations for varying and mixed previous empirical findings in the existing literature, and hence have useful investment implications.
•Causal links between the U.S. industry credit and stock markets are examined.•Full sample causality results show that all industry stock markets cause their CDS counterparts.•Bidirectional causalities exist for the banking, healthcare and material industries.•Rolling window estimates confirm inconsistencies in the conventional CDS-Stock relationships.•Market conditions and monetary policy are major drivers of the industryCDS-stock nexuses.
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Details
- Title
- Directional and bidirectional causality between U.S. industry credit and stock markets and their determinants
- Creators
- Syed Jawad Hussain Shahzad - COMSATS University IslamabadSafwan Mohd Nor - Universiti Malaysia TerengganuShawkat Hammoudeh - Montpellier Business SchoolMuhammad Shahbaz - Montpellier Business School
- Publication Details
- International review of economics & finance, v 47
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000391899900004
- Scopus ID
- 2-s2.0-84992732376
- Other Identifier
- 991019167764304721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics