Empirical Evidence of Co-Movement between the Canadian CDS, Stock Market And TSX 60 Volatility Index

Abstract

Purpose- The prime objective of this study was to find the co-movement between the Canadian credit default swaps market, the Stock market and volatility index (TSX 60 Index) Design/ Methodology- To achieve this purpose, daily data containing 2870 observations starting from the 1st of January 2009 to the 30th of December 2019 were analyzed. This study employed the wavelet approach to present results in short-term, medium-term, long-term, and very long time. Findings- The findings of this study showed a negative correlation between the CDS market, stock market, and the TSX 60 index in the short-term as well as in the long-term term, while in medium-term and very long-term period correlation is strongly positive. The wavelet co-movement results in the short-term and long-term were negative, while this relationship in the medium-term and very long-term period was strongly positive. Practical Implications- This research provides simultaneous valuable information for investment decisions in the short, medium, and long term time horizons, as well as for the policymakers in the Canadian credit default swaps market, stock market, and the volatility index (TSX 60 Index).

Co-movement between GCC stock markets and the US stock markets: A wavelet coherence analysis

“…It is commonly known that a stock market movement within a country is influenced by the movement of either other stocks in other regions or countries, as proven in the empirical evidence presented in the literature (Alagidede & Mensah, 2016;Jiang & Yoon, 2020). In fact, a wide range of co-movements of stock markets between various countries was proven in several works of research (R. Ali et al, 2020;Meng & Huang, 2019;Mensi, 2019). Hyeongwoo et al (2015) studied the spillover effects resulted from the economic decline of the US on developing Asian countries.…”

“…R. Ali et al (2020) investigated the co-movement between the Canadian credit default swaps market, the Stock market and volatility index (TSX 60 Index); the study employed the wavelet approach to present results in short-term, medium-term, long-term, and very long time. The wavelet co-movement results in the short-term and long-term were negative, while this relationship in the medium-term and very long-term period was strongly positive.…”