The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression
Previous studies focused on the fundamental channels of the interaction between the equity market and credit default swap (CDS) market. This paper finds another channel, investor sentiment, that contributes to the impact of the equity market on the CDS market under different time horizons and market...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Hindawi-Wiley
2023-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2023/3475079 |
| _version_ | 1826992730843119616 |
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| author | Weifang Mao Huiming Zhu Hao Wu Zhongqingyang Zhang Jin Chen |
| author_facet | Weifang Mao Huiming Zhu Hao Wu Zhongqingyang Zhang Jin Chen |
| author_sort | Weifang Mao |
| collection | DOAJ |
| description | Previous studies focused on the fundamental channels of the interaction between the equity market and credit default swap (CDS) market. This paper finds another channel, investor sentiment, that contributes to the impact of the equity market on the CDS market under different time horizons and market conditions within the framework of wavelet quantile regression. It absorbs both the merits of wavelet transform and quantile regression and is advantageous in analyzing heterogeneous time horizons and full conditional distributions. Empirical results show that investor attitude turning optimistic has a negative influence on the deviation of CDS market spread from theoretical value, while the intensification of fear among equity market will enlarge this deviation. Besides, we discovered that the influence of equity market sentiment on the CDS market first increases and then decreases as the time horizon lengthens and that the greater the deviation of CDS spreads from intrinsic value is, the more irrational the CDS market participants are. These findings suggest that the influence of investor sentiment on the credit default swap market is self-reinforced. Our results are robust after controlling for macroeconomic conditions and under different wavelet decompositions. Reasonable suggestions are given to financial institutions, investors, and policy makers based on our findings. |
| first_indexed | 2024-03-12T13:38:31Z |
| format | Article |
| id | doaj.art-a0f3fb072afd4af8a54be6e2a829abbe |
| institution | Directory Open Access Journal |
| issn | 1099-0526 |
| language | English |
| last_indexed | 2025-02-18T08:53:57Z |
| publishDate | 2023-01-01 |
| publisher | Hindawi-Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj.art-a0f3fb072afd4af8a54be6e2a829abbe2024-11-02T23:56:25ZengHindawi-WileyComplexity1099-05262023-01-01202310.1155/2023/3475079The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile RegressionWeifang Mao0Huiming Zhu1Hao Wu2Zhongqingyang Zhang3Jin Chen4College of Business AdministrationCollege of Business AdministrationCollege of Business AdministrationCollege of Public ManagementSchool of Geosciences and Info-PhysicsPrevious studies focused on the fundamental channels of the interaction between the equity market and credit default swap (CDS) market. This paper finds another channel, investor sentiment, that contributes to the impact of the equity market on the CDS market under different time horizons and market conditions within the framework of wavelet quantile regression. It absorbs both the merits of wavelet transform and quantile regression and is advantageous in analyzing heterogeneous time horizons and full conditional distributions. Empirical results show that investor attitude turning optimistic has a negative influence on the deviation of CDS market spread from theoretical value, while the intensification of fear among equity market will enlarge this deviation. Besides, we discovered that the influence of equity market sentiment on the CDS market first increases and then decreases as the time horizon lengthens and that the greater the deviation of CDS spreads from intrinsic value is, the more irrational the CDS market participants are. These findings suggest that the influence of investor sentiment on the credit default swap market is self-reinforced. Our results are robust after controlling for macroeconomic conditions and under different wavelet decompositions. Reasonable suggestions are given to financial institutions, investors, and policy makers based on our findings.http://dx.doi.org/10.1155/2023/3475079 |
| spellingShingle | Weifang Mao Huiming Zhu Hao Wu Zhongqingyang Zhang Jin Chen The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression Complexity |
| title | The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression |
| title_full | The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression |
| title_fullStr | The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression |
| title_full_unstemmed | The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression |
| title_short | The Influence of Equity Market Sentiment on Credit Default Swap Markets: Evidence from Wavelet Quantile Regression |
| title_sort | influence of equity market sentiment on credit default swap markets evidence from wavelet quantile regression |
| url | http://dx.doi.org/10.1155/2023/3475079 |
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