The Impact of Subprime Crisis on the Relationships between Credit Market, Stock Market, and Foreign Exchange Market
Date Issued
2009
Date
2009
Author(s)
Wu, Chien-Wei
Abstract
This thesis use sovereign credit default swap (sovereign CDS) as an index to measure the credit risk of a country to investigate whether the subprime crisis demonstrates a significant impact on the relationships between the credit market, the stock market, and the foreign exchange market in the target countries. The target countries include America, Japan, South Korea, Brazil, Russia, Iceland, and Argentina. This thesis uses daily data covering from January 2005 to December 2008 and separates these data into “pre-subprime crisis” and “during-subprime crisis.” This paper adopts unit root test, Cointegration test, Granger causality test to conduct the empirical analysis.he result of Cointegration test shows that the credit risk is critical to the subprime crisis. In the period of the subprime crisis, the relationships between credit market and the other markets are stronger than the relationships in the period of “pre-subprime crisis.” The result of Granger causality test shows that the interaction between credit market, stock market, and foreign exchange market is significantly intense during the subprime crisis. The subprime crisis indeed brings systematic risk to these markets in these seven countries. In conclusion, the subprime crisis brings significant impact on the relationships between the credit market, the stock market, and the foreign exchange market in these seven countries.
Subjects
Subprime crisis
Credit Default Swap
Credit market
Stock Market
Foreign Exchange Market
Cointegration
Granger Causality
Type
thesis
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