Abstract:
This paper investigates the asymmetric and nonlinear transmission of financial and energy
prices to US five-year financial CDS sector index spreads for the banking, financial services
and insurance sectors in the short- and long-run over the recent periods revolving around the
global financial crisis. We employ the nonlinear ARDL (NARDL) model to account for the
short- and long-run asymmetries in the sensitivity of those CDS sector index spreads to their
determinants. Our findings suggest that there is evidence of short- and long-run nonlinearities
and asymmetries in the adjustment process of the three CDS variables. There are also shortand
long-run asymmetries in the influences of macroeconomic and financial variables on the
CDS sector spreads. These findings are important for policymakers who deal with credit risks
at the sector levels.JEL Codes: C32, F65, G01
