Contagion in Crude Oil Futures Market and 3Y, 4Y and 5Y CDS Markets for the Post- Global Financial Crisis Period: A Multivariate GARCH-cDCC Approach

Abstract

This paper seeks to investigate the time-varying conditional correlations to the crude oil futures contract returns and the private Credit Default Swap market returns of Germany and France. We employ a dynamic conditional correla- tion (DCC) Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) model to find potential conta- gion effects between the markets. The time under investigation is the 2011±2018 period. We focus on the CDSs of the biggest banks in Germany and France, namel\: Sociptp Gpnprale and Deutsche Bank AG, using 3-, 4- and 5- year maturity CDSs. Empirical results show an increase in conditional correlation or contagion for the following pairs of markets: Sociptp Gpnprale CDS 3Y-Crude oil futures; Sociptp Gpnprale CDS 4Y-Crude oil futures; and Sociptp Gpnprale CDS 5Y-Crude oil futures for two periods (10/2014±12/2014 and 04/2017±11/2017). The results are of interest to policymakers who provide regulations for the CDS markets