The Effect of Credit Derivatives on Financial Stability
Due to the recent financial turmoil, questions have been raised about the impact of complex financial products, like credit derivatives, on financial stability. The academic literature however does not provide a clear answer to this question. This paper empirically links the stability of the financi...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Tuwhera Open Access Publisher
2016-07-01
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| Series: | Applied Finance Letters |
| Subjects: | |
| Online Access: | https://ojs.aut.ac.nz/applied-finance-letters/article/view/6 |
| _version_ | 1818208450876801024 |
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| author | Richard van Ofwegen Willem F.C. Verschoor Remco C.J. Zwinkels |
| author_facet | Richard van Ofwegen Willem F.C. Verschoor Remco C.J. Zwinkels |
| author_sort | Richard van Ofwegen |
| collection | DOAJ |
| description | Due to the recent financial turmoil, questions have been raised about the impact of
complex financial products, like credit derivatives, on financial stability. The academic
literature however does not provide a clear answer to this question. This paper empirically
links the stability of the financial sector to the use of credit derivatives for the main constituents
of the European financial sector. We find that the use of credit derivatives increases the
probability of default and thus reduces the overall financial sector stability. In addition,
we find evidence that this relationship is progressive and economically meaningful. |
| first_indexed | 2024-12-12T04:45:01Z |
| format | Article |
| id | doaj.art-aba252b7821f40e9bf5304f7b2fc6cce |
| institution | Directory Open Access Journal |
| issn | 2253-5799 2253-5802 |
| language | English |
| last_indexed | 2024-12-12T04:45:01Z |
| publishDate | 2016-07-01 |
| publisher | Tuwhera Open Access Publisher |
| record_format | Article |
| series | Applied Finance Letters |
| spelling | doaj.art-aba252b7821f40e9bf5304f7b2fc6cce2022-12-22T00:37:40ZengTuwhera Open Access PublisherApplied Finance Letters2253-57992253-58022016-07-011110.24135/afl.v1i1.6The Effect of Credit Derivatives on Financial StabilityRichard van Ofwegen0Willem F.C. Verschoor1Remco C.J. Zwinkels2University of LeidenErasmus University RotterdamErasmus University RotterdamDue to the recent financial turmoil, questions have been raised about the impact of complex financial products, like credit derivatives, on financial stability. The academic literature however does not provide a clear answer to this question. This paper empirically links the stability of the financial sector to the use of credit derivatives for the main constituents of the European financial sector. We find that the use of credit derivatives increases the probability of default and thus reduces the overall financial sector stability. In addition, we find evidence that this relationship is progressive and economically meaningful.https://ojs.aut.ac.nz/applied-finance-letters/article/view/6Credit derivativescredit risk transferfinancial sector stabilityprobability of default |
| spellingShingle | Richard van Ofwegen Willem F.C. Verschoor Remco C.J. Zwinkels The Effect of Credit Derivatives on Financial Stability Applied Finance Letters Credit derivatives credit risk transfer financial sector stability probability of default |
| title | The Effect of Credit Derivatives on Financial Stability |
| title_full | The Effect of Credit Derivatives on Financial Stability |
| title_fullStr | The Effect of Credit Derivatives on Financial Stability |
| title_full_unstemmed | The Effect of Credit Derivatives on Financial Stability |
| title_short | The Effect of Credit Derivatives on Financial Stability |
| title_sort | effect of credit derivatives on financial stability |
| topic | Credit derivatives credit risk transfer financial sector stability probability of default |
| url | https://ojs.aut.ac.nz/applied-finance-letters/article/view/6 |
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