ABSTRACT
This chapter investigates the dynamic relationship among bank sector credit default swap (CDS) indices for the European Union (EU), the UK and the US. It aims to assess the dynamic interdependence of the bank CDS indices across countries at the sector level. The chapter explores the asymmetric behavior of time-varying correlations among bank CDS spreads, which are more influenced by downward shocks than upward shocks. It examines the potential impacts of the financial crises on the estimated dynamic conditional correlations (DCCs) among the bank sector CDS indices using the method employed. The chapter provides empirical methodology and explains dataset of the methodology. It discusses the empirical results of the causality test. The correlations between each pair of EU, US, and UK bank sector CDS indices fluctuate widely over time, and the DCC estimates of the EU and UK bank sector CDSs are relatively stable at high levels, suggesting the existence of solid market integration.
