EQY-CDS Relationship

MSC IN ECONOMICS & BUSINESS ADMINISTRATION
APPLIED ECONOMICS AND FINANCE

DEPARTMENT OF ECONOMICS
The relationship between

equity prices and credit
default swap spreads
An empirical analysis
Handed in: 31. August 2009
Written by:
Ida Buus
Charlotte Renneberg J. Nielsen
Thesis supervisor:
Erik Haller Pedersen
The Danish National Bank
COPENHAGEN BUSINESS SCHOOL 2009

Executive summary
This thesis analyses the relationship between equity prices and credit default spreads (CDS). The
CDS is an OTC contract that provides insurance against the risk of default by a particular
company A CDS reflects the credit risk and this credit risk is also present in equity prices as
credit risk influence the value of a firm. The relationship between CDS spreads and equity prices
is interesting to examine since the nature and direction of this relationship can be used when
making economic models, issuing debt and planning arbitrage strategies and the CDS’ played a
role in the depth and increase of the crisis that started in 2008. Furthermore due to the young age
of the CDS market the available research on the subject is limited and our study will contribute
by being the most extensive as far as we know.
We analyse the relationship between equity prices and credit default spreads during the period
2nd January 2004 to 1st May 2009 for 265 firms present in S&P 500 in 2002. We examine the
daily lead-lag relationship in a vector autoregressive model (VAR) or in the case of co-
integration in a vector error correction model (VECM). Additionally we examine the Spearman
Rank correlation, Granger Causality test & Granger-Gonzalo measure.
First, we find that equity prices and CDS spreads are negatively correlated. Second, that equity
prices influence CDS spreads and not the other way around. Third, that the relationship is not
affected by including exogenous variables in the model. Fourth, that the strength of the
relationship increases the higher the credit risk. Fifth, we find that for some sectors the
relationship becomes more pronounced the higher the leverage in the sector.
We examine how an increase in credit risk influence the relationship by splitting our data into
before and after the beginning of the crisis, in rating, and quartiles. We find that the influence of
equity prices on CDS spreads is stronger in the period after the beginning of the crisis than
before. This indicates that the relationship between CDS spreads and equity prices is stronger
under deteriorating market conditions.
Furthermore we examine how the credit rating of the underlying entity affects the relationship.
We do this by splitting our data in investment grade and high yield. The influence of equity
prices on CDS spreads is stronger for the high yield model than the investment grade model.
This indicates that the relationship between CDS spreads and equity prices is stronger the lower
the credit rating of the underlying entity.
2
At last we examine how the size of the CDS spread effects the relationship. We do this by
splitting our data into quartiles. We split the data for index, before and after the beginning of the
crisis, high yield, and investment grade. We find that when comparing the quartiles against each
otherthe influence of equity prices on CDS spreads is strongest for quartile 4, second strongest
for quartile 3, third strongest for quartile 2 and least strongest for quartile 1. Moreover when
comparing the quartile models with their respective overall index we find that quartile 3 and 4
are stronger models than the overall model except for the models for high yield and investment
grade.
The overall conclusion is that there is a negative relationship between CDS spreads and equity
prices and that equity prices lead CDS spreads.
3
Acknowledgement
We would like to express our gratitude and give thanks to the people whom help us complete this
thesis.
BankInvest for kindly giving us access to Bloomberg and thereby enabling us to get high quality
data not otherwise available.
Rasmus Hansen (BankInvest) for continuously inspiration and technical support.
Kirsten Nielsen for editorial support.
Our advisor Erik Haller Pedersen for valuable comments and suggestions.
At last but not least our friends and family for moral support.
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Table of contents
Executive summary ......................................................................................................................... 2
Acknowledgement ........................................................................................................................... 4
Introduction ................................................................................................................................... 11
1.1 Relation to equity market .................................................................................................... 12
1.2 Objectives of the study ........................................................................................................ 14
1.3 Problem ............................................................................................................................... 15
2 Delimitation ........................................................................................................................... 15
3 Structure ................................................................................................................................ 16
4 Theory ................................................................................................................................... 17
4.1 Efficient markets ................................................................................................................. 17
4.2 Credit Derivatives ............................................................................................................... 18
4.3 Credit default swaps ............................................................................................................ 19
4.3.1 Definition ..................................................................................................................... 19
4.3.2 Valuation of Credit Default Swaps .............................................................................. 22
4.3.3 The CDS market in numbers ........................................................................................ 23
4.4 Equity market ...................................................................................................................... 26
4.4.1 Definition ..................................................................................................................... 26
4.4.2 Valuation models.......................................................................................................... 27
4.5 Merton Model ...................................................................................................................... 28
5 Literature review ................................................................................................................... 30
6 Hypotheses ............................................................................................................................ 32
7 Methodology ......................................................................................................................... 35
7.1 Correlation ........................................................................................................................... 36
7.2 Autocorrelation.................................................................................................................... 36
7.3 Stationarity .......................................................................................................................... 37
7.4 Model selection ................................................................................................................... 39
7.4.1 VAR models ................................................................................................................. 39
7.4.2 VECM model ............................................................................................................... 40
7.5 Granger Causality ................................................................................................................ 41
7.6 Gonzalo and Granger measure ............................................................................................ 42
7.7 Method overview................................................................................................................. 42
8 Data description..................................................................................................................... 43
5
9 Empirical analysis ................................................................................................................. 46
9.1 Index .................................................................................................................................... 47
9.1.1 Model with CDS spreads as dependent variable .......................................................... 49
9.1.2 Model with equity price as dependent variable ............................................................ 50
9.2 Exogenous variables ............................................................................................................ 50
9.2.2 Model with equity price as dependent variable ............................................................ 52
9.2.3 Summary ...................................................................................................................... 53
9.3 Quartiles .............................................................................................................................. 53
9.3.2 Model with equity prices as dependent variable .......................................................... 56
9.3.4 Summary ...................................................................................................................... 57
9.4 Splitted time periods............................................................................................................ 57
9.4.1 2nd January 2004 to 8th August 2007 (Before) ............................................................. 59
9.4.2 9th August 2007 to 1st May 2009 (After) .................................................................... 61
9.5 Time periods split on quartiles ............................................................................................ 63
9.5.1 Before the beginning of the crisis 2nd January 2004 – 8th August 2007 ....................... 65
9.5.2 After the beginning of the crisis 9th August 2007 – 1st May 2009 ............................... 67
9.5.3 Summary ...................................................................................................................... 70
9.6 Rating .................................................................................................................................. 70
9.6.1 Models with CDS spreads as dependent variable ........................................................ 73
9.6.2 Models with equity prices as dependent variable......................................................... 74
9.6.3 Summary ...................................................................................................................... 75
9.7 Rating split on quartiles....................................................................................................... 75
9.7.1 High yield ..................................................................................................................... 78
9.7.2 Investment grade .......................................................................................................... 80
9.8 Sectors ................................................................................................................................. 83
9.8.1 Models with CDS spreads as dependent variable ........................................................ 88
9.8.2 Models with equity prices as dependent variable......................................................... 90
9.8.3 Summary ...................................................................................................................... 90
9.9 Results ................................................................................................................................. 91
9.10 Equity volatility ................................................................................................................. 98
10 Discussion ........................................................................................................................... 101
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10.1 implications ..................................................................................................................... 101
10.1.1 Economic models ..................................................................................................... 101
10.1.2 New debt issue ......................................................................................................... 102
10.1.3 Investment strategy .................................................................................................. 103
10.2 Critic of results ................................................................................................................ 104
11 Concluding remarks ............................................................................................................ 106
12 Suggested further research ..................................................................................................... 107
Litterature .................................................................................................................................... 109
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Overview of tables
Table 0: S&P 500 sector distribution
Table 1: Index – descriptive statistics
Table 2: Index - correlation
Table 3: Index - Granger Causality test
Table 4: Index – VAR CDS
Table 5: Index - VAR EQ
Table 6: Exogenous – Granger Causality test
Table 7: Exogenous – VAR EQ
Table 8: Exogenous – VAR CDS
Table 9: Quartile - descriptive statistics
Table 10: Quartile – correlation
Table 11: Quartile – Granger Causality test
Table 12: Quartile – VAR CDS
Table 13: Quartile – VAR EQ
Table 14: Time periods – descriptive statistic mean
Table 15: Time periods – descriptive statistic st.d.
Table 16: Time periods – correlation
Table 17: Before – Granger Causality test
Table 18: Before – VAR CDS
Table 19: Before – VAR EQ
Table 20: After – Granger Causality test
Table 21: After – VAR CDS
Table 22: After – VAR EQ
Table 23: Time period quartiles – descriptive statistic
Table 24: Time period quartiles – correlation
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Table 25: Before quartiles – Granger Causality test
Table 26: Before quartiles – VAR CDS
Table 27: Before quartiles – VAR EQ
Table 28: After quartiles – Granger Causality test
Table 29: After quartiles – VAR CDS
Table 30: After quartiles – VAR EQ
Table 31: Rating scale and definition
Table 32: Rating – descriptive statistics
Table 33: Rating – correlation
Table 34: Rating – Granger Causality test
Table 35: Rating – VAR CDS
Table 36: Rating – VAR EQ
Table 37: Rating quartile – descriptive statistic CDS
Table 38: Rating quartile – descriptive statistic EQ
Table 39: Rating quartile – correlation
Table 40: High yield quartiles – Granger Causality test
Table 41: High yield quartiles – VAR CDS
Table 42: High yield quartiles – VAR EQ
Table 43: Investment grade quartiles – Granger Causality test
Table 44: Investment grade quartiles – VAR CDS
Table 45: Investment grade quartiles – VAR EQ
Table 46: Sector – descriptive statistics CDS
Table 47: Sector – ranking mean/st.d. CDS
Table 48: Sector – descriptive statistics EQ
Table 49: Sector – ranking mean/st.d. EQ
Table 50: Sector – financial leverage
Table 51: Sector – comparison of correlation, leverage and mean
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Table 52: Sector – Granger Causality test
Table 53: Sector – VAR CDS
Table 54: Sector – VAR EQ
Table 55: Overview of results
Table 56: Comparison of models
Table 57: Index before quartile raking
Table 58: Hypotheses, decision and argument
Table 59: Volatility - correlation
Table 60: Volatility – Granger Causality test
Table 61: Volatility – VAR/VECM models CDS
Overview of figures
Figure 0: Structure overview
Figure 1: CDS transaction
Figure 2: Credit derivative – pricing relationship
Figure 3: Development in single-name and multi-name CDS
Figure 4: CDS single-name 2008-H2 parted on counterparties
Figure 5: CDS single-name 2008-H2 parted on maturity
Figure 6: Total value of share trading 2008
Figure 7: Method overview
Figure 8: Interaction between CDS and equity index
Figure 9: Development in equity prices and CDS spreads in quartiles
Figure 10: Development in CDS spreads and equity prices
Figure 11: Development in high yield and investment grade CDS spreads and equity prices
Figure 12: Investment strategy 1
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Introduction
Credit risk1 is a major source of risk for most commercial banks and arises from the possibility
that borrowers, bond issuers, and counterparties may default (Hull:2007:255). It appears in
almost all financial activities and therefore it is important to measure, price and manage
accurately. Credit derivatives can help investors with these issues. Credit derivatives are
financial contracts that transfer the risk between two counterparties without actually transferring
the underlying asset.
One kind of credit derivative is credit default swap (CDS). The buyer of a CDS has a credit risk
exposure in a firm2, typically bonds or loans, and wants to be protected from the risk that the
firm e.g. defaults. The seller of a CDS offers to compensate the buyer of a CDS if the firm e.g.
defaults. To receive this protection the buyer of a CDS makes a series of payments to the seller.
In the event of a e.g. default the seller of a CDS has to fulfil his commitment but if a default does
not happen the seller of a CDS continue to receive the payments from the buyer of a CDS until
the contract expires.
CDS’ were created by JPMorgan Chase in the mid-90’s with the aim to free up capital. At that
time JPMorgan Chase had provided a large amount of loans to corporations and foreign
governments. By federal law they were required to keep huge amounts of capital in reserve in
case any of the loans went bad. They came up with the idea to create the CDS inspired by
hedging for fluctuations in interest rates and commodity prices. By using the CDS they could be
protected if the loans defaulted and at the same time free up capital. (Phillips:2008:1).
As the market matured and developed in size CDS’ became less a hedging instrument and more
a way to speculate for or against the likelihood that particular firms would suffer financial
distress or to take advantage of mispricing in the market. The CDS market was largely exempt
from regulation by the Securities and Exchange Commission (SEC) and the Commodity Future
Trading Commission (CFTC) with the Commodity Futures Modernization Act for 2000, which
also provided Enron’s loophole (The Washington Post:2003). As the derivative market exploded
in popularity Warren Buffet warned publicly that derivatives were “Financial weapons of mass
destructions” (BBC News:2003).
1
Credit risk is defined as risk created by loss associated with the default of the borrower, or the event of credit
rating deterioration (Forte:2006:4).
2
For simplicity we will at this point assume that the buyer of a CDS actual has a risk exposure.
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Many agreed with this statement when the credit crisis hit the world economy in mid 2008. The
CDS market was accused of causing some of the depth and increased spread of the crisis, and
this became obvious when American International Group Inc. (AIG) crashed (Abbott:2009). AIG
had sold a lot of CDS contracts and never taken into account that the default intensity increased
as it did under the crisis. AIG then became liable to settle a lot of CDS contracts but was not able
to fulfil their commitment. They simply gambled that they never had to pay – but when they
suddenly had to they went broke (Davidson: 2009). The government later saved AIG by a $180
billion rescue plan. The scenario of AIG was not a unique case.
It was possible for AIG and a lot of other firms to issue CDS contracts for such large amounts for
which they did not have the capital in case of a settlement, because the CDS market was not very
transparent or regulated (Gillam:2009). CDS are traded over-the-counter (OTC) and there is no
central reporting mechanism to determine the price of CDS (Morrissey:2008).
At the time of writing the Obama administration has taken steps to a regulation of the CDS
market and proposed a plan to the Congress in August 2009 (Abbott:2009). They proposed that
CDS trading should be supervised, new requirements for trade reporting, clearing of standardised
contracts and capital backing the trades (Brettell:2009). Combined this should heighten the
transparency of the market and limit the counterparty risk. Under the proposal SEC and CFTC
should work together to create industry rules (Abbott:2009).
Even though the rules for the regulation of the market are not yet established initiative to clear all
standardised contracts has been taken. On 6th March 2009 Intercontinental Exchange Inc (ICE)
established ICE trust, the first clearinghouse for CDS’. It is so far also the only one and has
cleared more than $1 trillion in notional volumes in index trades (ICE:2009) and it will expand it
operations to also include single name contracts. Moreover JP Morgan Chase, the largest trader
of OTC derivatives, has given open access to their CDS pricing system in January 2009 by
transferring it to International Swap and Derivatives Association (ISDA) (Pension &
Investment:2009).
All in all a new and more regulated future is set for the CDS market.
1.1 Relation to equity market

CDS spread represent the credit risk in a particular firm and this credit risk is also present in
equities. It is expected that when the credit risk of a firm increases the CDS spread will increase
– i.e. it becomes more expensive to be protected against the risk of default of the firm as the
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probability of default increases. An increase in credit risk also affects the equity of the firm.
When the credit risk increases the value of the firm is also affected and this will affect the equity
price in a negative way. Intuitively there should be a negative relationship between the CDS
spread and the equity price of a firm. This means that increased credit risk increases the spread
of the CDS and decreases the price of the equity.
The CDS and the equity market differentiate a lot in size, maturity, trade volume and regulation.
Therefore researchers and traders have been interested in analysing how efficient the two
markets are when compared and how the interaction is between them. If inefficiencies exist
arbitrage between the two markets may be possible.
The CDS market has been a free market without regulations until the crisis, which has made it a
very interesting market. A market that has not been regulated in any significant way should self-
regulate according to the “invisible hand” theory by Adam Smith. But does this freedom really
create an efficient market? Other aspects of the CDS market also have to be considered. The
counterparties on the market are only professionals and there are fewer players than on the equity
market. Moreover CDS spreads depend on the probability of default of a particular firm and it
can be argued that some participants are able to estimate this probability better than others due to
more information. For example a bank that works closely with a firm by providing loans, advice
etc. is likely to have more information about the real creditworthiness of this firm than other
financial institutions that do not have any dealings with this specific firm. Therefore there could
be a case of asymmetric information but of course it could also be argued that the two issues are
dealt with in two different parts of the bank and that they might not share the same information
(Hull:2007:309). These are aspects that increase the probabilities of an inefficient market.
On the other hand, the equity market is probably the most watched market in world. Thousands
and thousands of analysts watch its every move. The market reacts fast to new information and
sometimes even before the information is public. The major equity markets are very regulated
and organised making trading as fast and inexpensive as possible. This may heighten the degree
of efficiency but the equity market might also have problems with insider trading – since both
instruments depends a lot on firm specific information.
It is interesting to examine the relationship between the CDS spreads and equity prices because
of the nature and direction of the relationship and because it is a relation that has not been widely
examined. The relationship can be used for example when making economic models, issuing
debt and arbitrage strategies. We will cover this in section 12.
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1.2 Objectives of the study
The aim of this paper is to examine how equity prices and CDS spreads are related. We find this
interesting since both instruments are affected by the current crisis and the relationship between
them caught our interest. We expect this relationship to be negative and we expect to find that
equity prices influence CDS spreads and not the other way around. Moreover we expect that the
degree of influence increases with the size of the spread and in deteriorating market conditions.
The reasons for this will be discussed in section 6 where we will list the hypotheses for our
empirical work.
Due to the young age of the CDS market the amount of research available within this area is
limited. As far as we know all researchers have found that there exist a negative relationship
between the two markets but the strength of the correlation is not unambiguous. The same is
valid for the direction of price discovery. Though there is a slight tendency in most research
findings that the equity market reacts faster to information and therefore leads the CDS market.
Details of the empirical findings of other researchers will be discussed in section 5.
The limited and ambiguous results of the research give room for further research on the subject.
Our study differentiates from the previously as the time period we examine is longer (5.5 years)
and the number of firms (265) we have in our sample is higher. Moreover we cover a time period
where the CDS market is more matured than in the previous research and this means that we
have been able to get more CDS data than in most of the other research. We have chosen only to
consider a selected sample of S&P 500, which is in the US market.
Besides the higher amount of data our time period also include the recent crisis where the CDS
played a role. This is a unique opportunity to test how or if the relationship change under more
volatile and decreasing conditions. Furthermore we will try to determine how the size of the
CDS spread influence the relationship as not previously done. We will also examine if the
relationship between CDS spreads and equity prices is influenced by the credit quality and sector
of the underlying entity.
We will apply the same techniques as some of the best studies in the field that will be discussed
in section 7. Compare to most of the other research papers we will not only consider the Granger
Causality test but also analyse the actual estimated models. As far as we know there has not been
such an extensive study of this particular subject.
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1.3 Problem
The main question this thesis seeks to answer is:
What is the relationship between the CDS spreads and the equity prices?
To answer this we will ask the following sub questions:
- How are CDS spreads and equity prices correlated?

- How do equity prices influence CDS spreads?
- How do CDS spreads influence equity prices?
- To which degree are the results robust?
o To which degree are our results influenced by:
Exogenous variables?
Market conditions?
The rating of the underlying entity?
The size of the CDS spread?
The level of financial leverage in each sector
2 Delimitation
In this thesis we have decided to analyse the relationship between CDS market and equity market
for the US market where we have chosen 265 companies from S&P 500. An advantage by
choosing to use only US market data is that we consider only one country. Some studies consider
the European market and therefore the analysis will include data from different countries and
these might be subject to different laws and regulations, which can make the studies on two
different countries less comparable and might loose some explanatory power. It means that
country specific issues might affect our results. Moreover the CDS was invented in US and
therefore the market in US might be more matured.
When analysing the relationship between CDS spreads and equity prices we decided to look at
the “big picture” and not consider specific events such as different initiatives a firm can make,
which transfers value between equity holders and creditors. One example could be that a firm
announces an unexpected major share buy-back program or increased cash-dividend financed by
issuing new debt. This will increase the equity price since the equity holders get cash up front,
whereas the credit risk will increase due to higher financial leverage, which increases the CDS
spread.
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In the analysis in section 9 we consider the relationship between CDS spreads and equity
volatility. It is simply an attempt to further determine the relationship between equity and CDS
spreads and not an attempt to simulate the Merton model as we do not include balance sheet
data.
Moreover, discussions in this paper are based on the assumption that we are only considering the
US market.
3 Structure
The thesis is split in 12 main sections. In section 4 we will describe the theories behind CDS,
equity, efficient markets, and the theoretical link between CDS and equity. Section 5 will go
through other empirical findings in this area. In section 6,7 and 8 we will describe our
hypotheses, the methodology and the data we are using to test them. In section 9 we test our
hypotheses and analyse the results. Section 10 will be a discussion of the implication of our
results. In section 11 we will give concluding remarks and section 12 is a suggestion for further
research.
Figure 0: Structure overview
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4 Theory
4.1 Efficient markets

As described in section 1.1-1.2 we will examine the relationship between equity prices and CDS
spreads. We will not only consider if there exists a negative relationship between equity prices
and CDS spreads but also if one leads the other in price discovery. In section 1.1 we described
characteristics of the two markets and discussed factors that might increase or decrease the level
of efficiency. But how is an efficient market determined? We will discuss this in this section.
A market is efficient when the security prices fully reflect all available information. This
definition does not take into consideration the costs of trading and acquiring information. It is
more realistic to take this into account and therefore the definition is moderated so prices reflect
information until the marginal cost of acquiring information and transactions cost no longer
exceed the marginal benefit. This means that the investors have incentive to trade the securities
until MC = MR. What generally define a market as efficient or inefficient is whether an investor
is able to consistently earn abnormal return, e.g. that the investor is able to consistently beat the
market and if this is the case the market is inefficient3.
If we find for example that equity prices lead CDS spreads it would mean that an investor would
possibly be able to use this information to consistently beat the market when trading CDS’ as he
would have knowledge about the future movements of CDS spreads by considering the
movements in equity prices. Public available information is available for both the investors that
trade in the CDS market and the investors that trade in the equity market, so if equity prices
reacts before CDS spreads it means that the equity market is faster to incorporate new
information and thereby must be more efficient.
But this argument is only correct if we do not consider insider trading. If we find that equity
prices lead CDS spreads this may be due to a more efficient market but it may also be due to
more insider trading in the equity market. If equity prices react to new information before it
becomes public and CDS spreads react to new information in the instance it becomes public the
CDS market is more efficient than the equity market.
As mentioned we might find in our study that equity prices are leading CDS spreads but due to
the aspect of insider trading we cannot say anything about which market is more efficient. To
3
Fama’s (1970) division of efficiency in weak, semi-strong and strong is widely accepted, but since we do not
conclude on the level of efficiency in this thesis we will not comment on this further.
17
examine which market are efficient event studies is necessary. In event studies it is possible to
determine if one of the markets reacts before or after the announcement and compare the reaction
time as separately events are examined. This is though beyond the scope of this paper.
This section is meant as a clarification for the reader that a possible lead/lag relationship does not
necessarily mean that one market is more efficient than the other. And in this paper we will only
consider the influence of one market on the other and not level of efficiency.
4.2 Credit Derivatives

The purpose of this chapter is to give an introduction to the credit derivative market to broaden
the understanding of the underlying theories behind a credit default swap.
Credit derivatives are defined as:
“A class of financial instruments, the value of which is derived from an underlying market value
driven by the credit risk of private or government entities other than the counterparties to the
credit derivative transaction itself”
(Das:2005:6).
This means that the credit derivative is an instrument to isolate the credit risk from an underlying
instrument, called reference entity (Das:2005:29), and transfer the risk between two
counterparties, which a credit derivatives transaction generally consists of. The payoff from the
contracts depends on the creditworthiness of one or more firms or countries. This relative new
instrument allows firms to trade credit risk much the same way as market risk (Hull:2007:299).
Credit derivatives are Over-The-Counter (OTC) products and this means that they are not traded
as equity on official regulated exchanges but the trading is directly between the two
counterparties. It gives the parties the freedom to specify the terms in the contract by negotiation
and is therefore less standardized. The trades are usually higher due to the relatively high
transaction cost by negotiation a contract the trades are usually higher. The counterparty risk by
OTC trading is also higher than in the exchange-traded market since there are less requirements
and standardizing (Hull:2007:28). The ISDA’s documentation and definitions has become the
accepted market standard used for both trading and structured transactions (Das:2005:113). But
this does not overcome the counterparty risk that OTC trading has. Some products try to
accommodate this by requiring the seller of the protection to make a payment up-front to the
protection buyer. These are called funded credit derivatives and include collateralized debt
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obligations, bond obligations, and loans obligations (CDO, CBO, and CLO). Not all credit
derivatives are traded as funded and the counterparty risk is still very present when trading credit
default swaps (CDS), credit spread options (CSO) etc. Since the credit crisis and the unfunded
credit derivatives role in this there is greater outside pressure to regulate the market further.
Therefore more credit derivatives are now being cleared through clearinghouses that act as
middlemen in the trade reducing the counterparty risk.
The trading of credit derivatives can be motivated by different reasons and a couple of these are
(Goldman Sachs: 2002:slide 1.07):
• To manage credit risk (by using credit derivatives it is easier to transfer credit risk from
one party to another.)
• To enable users to diversify credit risk (Exposure to countries, market sectors, and types
of financial instruments can selectively be increased or decreased by the involved parties)
• To earn income (Low-cost borrowers with large balance sheets can earn income from
parties who want credit exposure without owning assets.)
• To provide access to exposures that would not otherwise be available (e.g. investors can
gain access to syndicated loans).
4.3 Credit default swaps
4.3.1 Definition
The most popular credit derivative is the credit default swap (CDS), which is a contract that
provides insurance against the risk of default by a particular firm (Hull:2007:299). More
precisely a CDS is a bilateral contract between two parties that agree to isolate and transfer the
credit risk for a reference entity, usually bond and loans, in case of a pre-defined credit event
occurs.
A possible scenario for buying a CDS is that firm A loans 100 millions USD to firm B (reference
entity). But firm A knows it is a risky position and they might lose part of or all 100 million USD
if the reference entity defaults before the loan is repaid. Firm A is not willing to take this risk so
they buy a CDS from firm C. Firm A then becomes the protection buyer and firm C becomes the
protection seller.
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Figure 1: CDS transaction
Protection buyer
pays spread until
Default before default
year X Protection seller
pays face value
CDS X-year
at default
contract
No default in the Protection buyer

period pays spread
The protection buyer has to pay the periodic payments until the contract expires or the reference
entity defaults (see figure 1). In the case of default the protection seller has to pay the protection
buyer the sum equal to the face value of the debt owed by the reference entity. This means that
the protection buyer obtains the right to sell bonds issued by the reference entity at their face
value when a credit event occurs and the protection seller agrees to buy the bonds for their face
value when a credit event occurs (Hull:2007:299). The transaction of a CDS results in that the
protection buyer has a credit exposure similar to taking a short position while the protection
seller has a credit exposure similar to taking a levered long position in the bond (Jersey:2007:3).
So far we have defined a credit event as default of the reference entity. But this was only for
simplicity according to the International Swaps and Derivatives Association (ISDA) 1999-2003
terms a credit event includes the following (ISDA:2003):
• Bankruptcy
• Failure to pay
o Borrow money, but not accounts payable
o Payment more than $1 million
o After pre-specified grace period
• Obligation default or obligation acceleration
• Repudiation or moratorium
o Mainly applies to sovereigns
• Restructuring
o Reduction or postponement of interest or principal repayments
o Changes in obligation’s seniority causing obligation to become subordinated
20
o Deferral or reduction of loan
o Change in currency or composition of material debt obligation
This also illustrates the flexibility of the CDS that the counterparties can agree to terms that are
very specific for the individual exposure the protection seller has. However, default are the most
popular.
4.3.1.1 Protection buyer – payment of spread

The total amount paid per year to buy protection is known as the CDS spread. Therefore the
credit spread is a measure for the compensation the protection seller gets for the risk of default
on the underlying security compared to the risk free rate. Calculation of the credit spread is as
follows (Das:2005:18):
Credit spread = yield of bond or loan – yield of corresponding risk free security
To find the difference between the yield of a risky security and a risk-free security the coupon
and maturity of the two securities has to be the same. The spread is paid with a frequency that is
decided between the two counterparties and is the cost of protection.
4.3.1.2 Protection seller – payment of face value in case of a credit event

In the case of a credit event the protection seller has to fulfil the CDS contract by paying the
protection buyer the default payment, which is equal to the face value of the debt. There are two
main types of settlement methods: cash settlement and physical delivery settlement
(Das:2005:86). The physical delivery settlement is the most used settlement method and
“Is structured as the payment of an agreed amount by the seller of protection in exchange for
delivery of a defaulted credit asset by the buyer of protection”
(Das:2005:86)
This means that in case of a credit event the protection buyer delivers the bond of the reference
entity to the protection seller in exchange for a cash amount of the face value of the debt. This
form for settlement assumes that the protection buyer is in possession of the debt of the reference
entity.
The other main settlement method is cash settlement, which does not assume the protection
buyer to be in possession of the debt of the reference entity. A cash settlement can take form as a
post default price, where the payment is based on the price of the reference asset following the
21
credit event, or a fixed payment, which is based on a pre-agreed fixed percentage of notional
principal (Das:2005:86).
4.3.1.3 Potential speculation

As described in the previous section the cash settlement of a CDS can happen without the
protection buyer owning any obligations in the reference entity. So even though CDS contracts
can be described as insurance, since it allows debt owners to hedge against credit events – they
differ from insurance as there is no requirement to hold the reference entity asset. This lack of
requirement means that CDS’ can also be used to speculate on changes in credit spreads or
mispricing (Hartmann:2008:4). This means that investors that take long positions in a CDS
without having any exposures to the reference entity have a good upside potential for exploiting
unjustified spreads between the CDS and the bond market. This also means that investors do not
have to worry that much about whether or not the reference entity issues new debt or whether or
not the other debt holders are ready to sell their debt or not (Byström: 2004:3).
4.3.2 Valuation of Credit Default Swaps

In order to better understand the relationship between the CDS market and the equity market it is
important to know how the CDS is priced and which elements affect the price of the CDS.
The valuation of derivative contracts is the cost of hedging. The pricing relationship between
credit derivatives and a cash instrument4 is that a risky asset must reflect the return from a risk-
free asset plus a risk margin. Risk margin is the compensation the investor is getting for the
assumed default risk.
Figure 2: Credit Derivatives - Pricing Relationship
Risk Free Risk margin Loan or Security

Asset + =
Source: Das (2005:461)
4 Cash instruments are financial instruments whose value is determined directly by markets. They can be divided
into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both
borrower and lender have to agree on a transfer.
22
This means that the pricing of a credit default swap should reflect the following factors
(Das:2005:489):
• Default probability of the reference entity

• Expected loss given default, which is the recovery rate on the reference entity or the
deliverable obligations
• Counterparty risk on the credit default swap
These factors are incorporated into the default probability model, where the CDS is split in two
sets of cash flows: A fixed leg and a floating leg. The fixed leg is the spread payments, whereas
the floating leg is the contingent cash flow payable by the seller of protection in case of a credit
event. The value of the credit default swap is equal to the difference between the present values
of the two legs (Troelsen:2008:4).

1 ! "

# #
Where:
VCDS = The value of the credit default swap
DFt = Discount factor for t0 to t1 (the chosen risk-free rate)
SPn = Marginal survival probability of reference entity from tn-1 to tn
RR = Recovery rate of the delivered obligation
CDSS = Fee (spread) on credit default swap (bps per annum)
AFt = Accrual factor for tn-1 to tn
SPt = Survival probability of reference entity for t0 to t1
4.3.3 The CDS market in numbers5

In this section we give an overview of the development of the CDS market.
5 All data in this section is from Bank of International Settlement (BIS) 2009
23
The CDS market experienced a steep development as it increased 7 times from 6 trillion USD in
2004 to 42 trillion USD in 2008. In the second half of 2008 the market experienced a contraction
and decreased with 27%. When considering the distribution of CDS’ there was a clear
overweight in the first half of 2004 where single-name CDS’ constituted 80% of the total CDS
market6. Multi-name CDS’ became more widely used and single-name CDS’ part of the total
CDS market had decreased to 62% in second half of 2008, which can be seen in figure 3.
Figure 3:Development in single-name and multi-name CDS’

70
60
Trillions USD
50
40
30
20
10
0
Single-name credit default swaps

Multi-name credit default swaps
Source: BIS 2009
As our data is on single name CDS we will continue the description of the market using only
single name data. From figure 4 it can be seen that almost half of the counterparties in CDS
trading is “Other financial institutions” and 1/3 of the counterparties is banks and security firms.
From this it is very clear that all the trading take place between professionals.
6
The other 20% of the market is multi-name CDS which is CDS contracts where the reference entity is more than
one name as in portfolios or baskets of default swaps or credit default swap indices (BIS:2006:1)
24
Figure 4: CDS single-name 2008-H2 parted on counterparties
Other financial
2% institutions
15%
1% Banks and security
firms
49%
Insurance and
financial guaranty firms
33%
[ SPVs, SPCs, or
SPEs], Hedge
funds, Other residual
financial customers
Source: BIS 2009
From figure 5 it can be seen that 64% of the single name CDS contracts have a maturity over 1
year to 5 years. This is also consistent with the fact that a 5-year contract is considered the most
normal. Contracts with a maturity of 1 year or less is only 7% of the total contracts and this
might be due to the fact that there are quite big transaction cost connected to agreeing on a
contract. 75% of the contracts are on investment grade (not considering the non-rated).
Figure 5: CDS single-name 2008-H2 parted on maturity
7%
29%
Maturity of one year or
less
Maturity over 1 year and
up to 5 years
Maturity over 5 years
64%
Source: BIS 2009
25
4.4 Equity market
The purpose of this section is to give a short introduction to the equity market in order to be able
to better understand elements in the equity price. Equity are traded in a high volume all over the
world and in 2008 the total value of share trading in the world was 184,250 trillion USD. The US
market constituted 38% of the total share trading and NASDAQ and NYSE are the two largest
exchanges in the world. This means that in 2008 the total value of share trading in US was
70,647 trillion USD – which gives a daily turnover of 279 trillion USD (WFE:2008). Even
though the numbers are not 100% comparable it is obvious that the equity market is much higher
than the CDS market.
Figure 6: Total value of share trading 2008
21% US
America - without US
15% Asia - Pacific

62%
Europe - Africa -
Middle East
2%
Source: World Federation of Exchanges 2009
4.4.1 Definition
Equity can be defined as:
“A common stock represent an ownership claim on the earnings and asset of a corporation.
After the holders of debt claims are paid, the management of the firm can either pay out the
remaining earnings to stockholders in the form of dividends or reinvest part or all of the
earnings in the business”
(Elton:2007:17)
This means that it is the ownership claims that are being traded on the exchanges. Equity is also
characterized by having limited liability. This means that the investor in case of a bankruptcy of
the underlying entity is only losing his initial investment and therefore creditors do not have any
26
legal claims on the investor. Moreover an investor gets voting rights by buying a share
(Elton:2007:17).
Equity is not only an investment opportunity but is also used for speculation – the price of equity
is determined by supply and demand and the volatility of equity is high. Therefore equity is
considered as a risky investment. As mentioned before some of the factors affecting the price of
equity are the expectations of risk and future return. It is unlikely that all investors have the same
expectation but if this would be the case there would not be any trading of equity. The price of
equity is the average of all the information and expectations the investors have. Therefore the
degree of efficiency in the market is important because it determines how fast information is
incorporated into the price of equity.
A lot of time and research have been invested into finding an effective way to determine the
future price of equity (Elton:2007:442) and a lot of the trading is driven by the ambition to make
above average return. The attempts have ranged from finding a simple rule for selecting equities
that will perform above average to hypotheses about broad influences affecting equity prices
(Elton:2007:442). If the market is efficient it will not be possible for investors to consistently
pick “winners” but the search for an effective method has and still is occupying thousands of
people.
In general terms the determinants of a common equity price are a function of firm’s earnings,
dividend, risk, cost of money and future growth rate. The problem arises when the factors have
to be specified and implemented into a system that uses these concepts to successfully value or
select equity (Elton:2007:442).
4.4.2 Valuation models7
4.4.2.1 Discounted cash flow model

The discounted cash flow (DCF) model is the model with the most theoretical weight
(Elton:2007:459) and is based on that the value of equity is equal to the present value of the cash
flow that the stockholder expects to receive from it8 (Elton:2007:443).
PV(equity) = PV(expected future dividends)
This can be formalized in the following equation:
7 This section is no way exhaustive but just examples of some of the popular valuation models.
8 In academic literature there is a long history of debate about what should be included in cash flow expected from a
share. We will here assume as Elton (2007:443) that it is the present value of all future dividends.
27
*
% %( %* & * % *
$ & & ) & &
1 & ' 1 & '( 1 & '* 1 & ' 1 & '*
#
Where P0 is the price today, DIVt is the dividend received at time t, and PH is the price at time H.
The DCF model has high popularity in the investment community but only a small fraction of
analysts use it. The majority of analysts still value equity by applying some sort of price earnings
ratio (P/E) to either present earnings, normalised earnings or forecasted earnings.
(Elton:2007:455)
Another popular form is regression analysis using broad determinants as earnings, growth, risk,
time value of money and dividend policy. This approach needs an estimation of the determinants
and a weighting of these in the model. (Elton:2007:455)
There is a large range of valuation models and so far none of them have turned out to be superior
in the search for above normal performance. The effect of the different models varies also with
the efficiency of the market.
4.5 Merton Model

The purpose of this project is to investigate the link between equity price and CDS spreads and
so far in our study the link has be augmented for based on previously empirical research but
there is also a theoretical background.
A crucial parameter in CDS pricing is the credit risk associated with the underlying entity. This
risk is often deducted from the credit rating made by rating agencies. This is quite infrequently
revised (and also under some critic) so another opportunity is to deduct the credit risk from the
market. Merton (1974) proposed a model that uses equity prices to estimate default probabilities
using equity volatilities, equity quotes and balance sheet information. This model made it
possible for the credit risk to be estimated on a daily basis, and is crucial for CDS pricing.
The basis of the model is that a firm’s equity is an option on the assets of the firm. For simplicity
and to illustrate the model the firm is assumed to have one zero-coupon bond outstanding and the
bond matures at T9.
We defined the variable in the model as:
V0: Value of firm’s assets today
9 The section that describes and deduct the model is based on Hull (2007:269-272)
28
VT: Value of firm’s assets at time T
E0: Value of firm’s equity today
ET: Value of firm’s equity at time T
D: Amount of debt interest and principal due to be repaid at time T
σV: Volatility of assets (assumed constant)
σE: Instantaneous volatility of equity
Two scenarios are defined as a situation where the firm default and one where there is no default
at time T.
Default: If in theory the value of a firm’s assets at time T is smaller than the debt interest and
principal due to be repaid at time T (VT < D) the firm would default and the value of its equity
would be zero.
Non-default: If VT > D the firm should make the debt repayments at time T and the value of
equity would be VT – D (remembering that assets = liabilities + equity), and therefore the firm
would not default.
The value of the firm’s equity at time T extracted from the Merton model is:
ET = max(VT-D, 0)
This can also be seen as a call option on the value of the assets of the firm with a strike price
equal to the repayment required on debt. The Black-Scholes formula for option pricing can then
be used to find the value for equity today.
+$ $ , -. ,(
Where
$/ 12(/
& 0' & 24 5

12 √5
And
29
( 12 √5
The value of debt today can be defined as the value of the firm’s asset subtracted the value of the
firm’s equity (D=V0-E0). The risk neutral probability that the firm will default on debt is N(-d2).
To calculate the probability of default V0 and σV need to be calculated because they are not
directly observable. But if the firm is publicly traded we can observe E0 (using equity prices).
This means that the Black-Scholes equation provides one condition that must be satisfied by V0
and σV and thereafter σE can also be estimated.
From a result of stochastic calculus know as Itô’s Lemma the following is found:
87
17 +$ 82 12 $ or 17 +$ , 12 $
This provides another equation that must be satisfied by V0 and σV. The equations provide a pair
of simultaneous equations that can be solved for V0 and σV.
The most important determinant of CDS spreads is the probability that a credit event involving
the underlying references entity occurs. Merton (1974) links this default probability to the equity
market valuation and the volatility of equity return. Therefore there is a theoretical background
to the hypotheses that there exist an empirical link between the equity market quotes and the
CDS spreads.
5 Literature review
In the past decade some empirical work has been done on the relationship between CDS spreads
and equity prices. We will go through the empirical work of other researchers who have dealt
with basically the same research question, as we will examine.
Financial theories as the Merton model and efficient market theories suggest that the equity
market has incorporated the probability of default in the equity price. This is due to the fact that
equity holders are more likely to follow the financial conditions/performance of the firm than
debt holders, since they are residual owners of the firm.
We have already established that in deteriorating conditions the CDS spread will increase and
the equity price decrease. So theoretically there should be a negative relationship between CDS
30
spreads and equity prices. As far as we know no other researcher has found a different
relationship when testing this empirically. Bystrøm (2004) investigated the relationship between
equity prices and the iTraxx10 CDS market and found a negative correlation of about 0.5 when
using Pearson correlation coefficient and Spearman rank correlation. Furthermore, he confirmed
his hypothesis that equity volatility and CDS spreads were positively correlated. Hafer (2008)
analysed the correlation between equity quotes and CDS quotes split on sectors over a period of
6 months from March 1 2007 to August 31, 2009 and found a negative correlation of 0.7 using
the same techniques as Bystrøm. Lake & Apergis (2009) found that equity across European and
US markets were negatively correlated to European CDS spread changes in the period from June
16, 2004 to November 13, 2008 by using error correction (EC) and the multivariable generalized
heteroskedasticity in mean (MVGARCH-M) modelling. The same results were found in the
Japanese market. Kikuchi (2009) found a negative correlation of 0.95 between the iTraxx Japan
and the equity market (TOPIX) using the same technique as Bystrøm. Other Asian studies by
Chang, Fung & Zhang (2008) and Ishikawa & Mezrich (2009) also found a very strong negative
relationship between CDS spreads and equity prices.
In connection with analysing the relationship between equity prices and CDS spreads a part of
the literature is concerned with whether information is embedded at the same time in the CDS
market and the equity market. If information is embedded first into one of the markets, there will
exist a lead/lag relationship between the two markets. A lead/lag relationship indicates
asymmetric information and can be a sign of inefficiencies between the two markets. A lead/lag
relationship between the two markets would not be surprising since they differ in organization,
age, number of traders, and liquidity.
When looking at the empirical findings for testing the relationship between the CDS market and
the equity market the results are mixed.
Longstaff (2003) was among the first to analyse the lead/lag relationship between equity, bonds,
and CDS’ for a sample of 67 single-named CDS firms in the period March 2001 to October 2007
and found no definitive relationship between the three markets.
Lake & Apergis (2009) considered the US and European equity market and found that CDS
spreads leaded equity prices in the period 2004 to 2008 by using MVGARCH-M modelling.
Hartmann (2008) used graphical inspections of US and European data for a period of 6 years
10 iTraxx is a group of international credit derivative indices that are monitored by the International Index Company
(IIC). iTraxx indices cover credit derivative markets in Europe, Asia and Australia
31
(2002-2008) and found that CDS spreads leaded equity prices. Furthermore, he found that his
results were stronger under deteriorating conditions. Zhang (2005) used cumulated changes in
rating-adjusted CDS spreads (CCAS) and cumulative abnormal relative changes of CDS spreads
(CARC) on US data in the period 1997-2003 and found that the CDS market leaded the equity
market. Chan (2008) analysed the relationship between equity prices and CDS spreads for seven
Asian countries in the period 2001-2007 and found by applying VECM, that CDS spreads leaded
equity prices in 5 of the 7 markets, and equity prices only leaded in 1 of the 7 markets.
Norden & Weber (2004) analysed individual equity prices, bond spreads, and CDS spreads of 58
international firms in the period 2000-2002 by using a VAR model approach. They found that
equity prices leaded CDS spreads in 39 of the 58 firms and that CDS spreads leaded equity
prices in 5 of the 58 firms. Forte & Pena (2006) used the VAR model approach to find the
relationship between 52 North American and European non-financial firms in the period
September 12, 2001 to June 25, 2003. They found that equity prices leaded CDS spreads in 24 of
65 cases and CDS spreads leaded equity prices in only 5 of the 65 cases. Fung (2008) examined
the relationship between the equity prices and the CDS spreads for US data from 2001 to 2007.
They found that the relationship depended on the credit quality of the underlying reference
entity. That is, there was mutual feedback of information between equity prices and high yield
CDS spreads, whereas equity prices leaded investment grade CDS spreads. They also found that
volatility of both high yield and investment grade CDS spreads leaded equity volatility, but also
that equity volatility gave some feedback on high yield CDS spreads. Bystrøm (2004) also finds
that information flows from the equity market to the CDS market in the period he was examining
(2004-2006). Realdon (2007) found that CDS spreads and default intensities seem to be driven
by equity prices for five large corporations in the period from January 1, 2003 to June 31, 2006.
As can be seen from the literature review above there is no unambiguous answer to which of the
two markets leads the other. The only thing that seems to hold is that there exist a negative
relationship between CDS spreads and equity prices. Slightly more studies find though that the
equity market leads the CDS market.
6 Hypotheses
In section 4.5 we have established the theory behind CDS spreads and equity prices and the
possible relationship indicated by the Merton model and in section 5 covered prior empirical
findings. We will use a combination of these two to create our hypotheses. Our hypotheses
32
indicate what we expect to find in our analysis. Our methodology section 7 is the link that makes
the testing of the hypotheses possible.
H1: The correlation between CDS spreads and equity prices is negative.
Our hypothesis 1 states that the correlation between CDS spreads and equity prices is negative.
According to the Merton theory and the literature reviews we will explain the reasoning behind
this. If the value of a firm increases due to for example higher earnings than expected the equity
holders will benefit because the equity prices increases. When the value of a firm increases the
distance to default also becomes greater. Since the likelihood of default has decreased the cost of
debt also decreases. Moreover when the likelihood of default is smaller the price of protection
against default also decreases and thereby the spread of the CDS decreases. This inverse
relationship is consistent with results of other empirical studies (see Bystrøm (2004), Hafer
(2008) and Lake et al. (2009))
We expect to find that the equity prices and CDS spreads are negatively correlated.
H2: Equity prices influence CDS spreads and CDS spreads do not influence equity prices.
Our hypothesis 2 states that equity prices influence CDS spreads and CDS spreads do not
influence equity prices and this considers the efficiency of the two markets. In section 4.1 we
stated the theory behind efficient markets and it is important because if the two markets are not
efficient arbitrage is possible. We will not determine to which degree the two markets are
efficient since this usually demand event studies. But instead we will determine if historical
equity prices influence current CDS spreads or/and if historical CDS spreads influence current
equity prices. This is not the same as determining the degree of efficiency because if we for
example find that equity prices leads CDS spreads this may be due to the fact that the equity
market is more efficient than the CDS market. However, it may also be due to the fact that there
is more insider trading in the equity market and it therefore reacts before the CDS market. This
means that the equity market reacts to information before it becomes public while the CDS
market reacts to information when it becomes public – and this does not mean that the CDS
market is less efficient.
The prior empirical studies (see section 5) did not find consistent results when examining this.
But a slight overweight of the studies found that equity prices influences CDS spreads and not
the other way around (Norden & Weber (2004), Forte & Pena (2006), and Fung (2008)). We
33
expect this as well also due to the fact that the CDS market is a young market compared to the
equity market and the size of the CDS market is approximately 4,000 times smaller than the
equity market globally11. Moreover there are thousand and thousand of analysts watching every
move of the equity market so it seems logical that it will react before the CDS market. It could
though be argued that the CDS market has been unregulated until 2009 and the possibility of
insider trading may could be high due to the clientele on the market. But on the other hand there
might as well be insider trading on the equity market. All in all we expect to find that historical
equity prices influence CDS spreads and not the other way around.
H3: The relationship between CDS spreads and equity prices is still strong when including
exogenous variables.
Our hypothesis 3 states that we expect the found relationship between CDS spreads and equity
prices still to exist even though we include exogenous variables into our model. This means that
the previous found relationship is not simply due to the fact that both CDS spreads and equity
prices are influenced by a common 3rd variable. We will include the same variables as exogenous
as Fung (2008).12
H4: When the credit risk increases the strength of the relationship between CDS spreads and
equity prices increases.
H4.a: The relationship between CDS spreads and equity prices is stronger under deteriorating
market conditions.
H4.b: The strength of the relationship between CDS spreads and equity prices becomes more
pronounced the lower the credit quality.
H4.c: The strength of the relationship becomes more pronounced the bigger the CDS spreads of
the underlying index.
Our hypothesis 4 states that the strength of the relationship between CDS spreads and equity
prices increases with an increase in credit risk. The reasoning behind this is that equity bears the
ultimate form of credit risk because it represents the most subordinated claim in the capital
structure of the firm. Thus equity holders are more likely to monitor the performance of the
11The data is not directly comparable so the result is not exact.

12
This is not a perfect test and as with every other model there will always be the risk that the found relationship is
due to omitted variable problem. We are not able to test the model for all possible exogenous variables.
34
company more closely since they have more to loose if a default occurs than creditors who hold
collateral or senior claims on the asset of the firm. The probability of default is higher in:
deteriorating equity market conditions compared to improving equity market conditions, low
credit quality firms compared to high credit quality firms, and in firms with high CDS spreads
compared to firms with low CDS spreads. Investors in equity seem more likely to take action
when the risk of default increases, that is, when the credit risk increases. This means that CDS
spreads should be more responsive to changes in equity prices,, when equity for a low credit
quality firm decreases than when equity for a high credit quality firm decreases. This is also the
finding of Norden & Weber (2007) and Fung et al. (2008).
H5: The strength of the relationship between CDS spreads and equity
equity prices becomes more
pronounced the more debt a sector has.
Our hypothesis 5 states that we argue that the relationship between CDS spreads and equity
prices are more pronounced in sectors with a lot of debt. The reasoning behind this is that
decreasing equity prices cause an increase in financial leverage,
leverage which is the ratio of
. The higher the debt compared to equity the more impact a decrease in equity
prices has on the change in financial leverage. The higher the financial leverage
leve the higher the
probability of default and therefore the higher the CDS spread. This means that investors in
sectors with more debt will be more responsive to changes in equity prices than investors in
sectors with lesser debt, due to that equity represents
represents the most subordinated claim in the capital
structure of the firm.
7 Methodology13
In order to analysee the relationship between equity prices and CDS spreads and to test our
hypotheses it is important to take the type of data we have into account. Since we have time
series data it is important that we use the models that have been designed to time series data and
take advantage of the special properties this type of data have14. Furthermore, time series data
can give some complications that would never happen
ha for cross-sectional
sectional data. Since the order of
13
We test on a 5% significance level
14 Methodology from similar empirical analyse will be used as benchmark, and all econometrics work will be done
in SAS Enterprise Guide 4.1 and SAS 9.1.
9.1 SAS Enterprise Guide 4.1 and SAS 9.1 are a statistical tools
tool generally
used for statistical and econometric analysis such as cross-
cross section, panel analysis, and time series analysis and
forecast
35
observations matters in time series data but not in cross-sectional data, it is mostly this that gives
complications (Studenmund:2006:420).
We will in this section go through the method we will apply to all our data.
7.1 Correlation
The correlation between CDS spreads and equity prices is found by applying Spearman’s Rank
Correlation test. This correlation test is a non-parametric test and does not make any assumptions
about the data and a particular nature of relationship between the two variables (McDoald:2008).
The Spearman’s Rank Correlation Coefficient is defined as
∑ <(
'( 1 6 : =
( 1
where di = difference in the ranks assigned to two different characteristics of the ith individual
and n = number of individuals ranked (Gujarati:2003:406). Rank correlations look at the
similarity of rankings (from the smallest to the largest observation) in two data series, and we
present rank correlation data coefficients because the various data comes from very different
non-normal distributions (Bystrøm:2004:7).
7.2 Autocorrelation
Autocorrelation is defined as:
“correlation between members of series of observations ordered in time”
(Gujarati:2003:442)
This means, that the disturbance term relation to any other observation is influenced by the
disturbance term relating to any observation. Since we are dealing with financial time series data
our data are likely to be autocorrelated, since the time interval between the observations is short
and because we are looking at price indices. We test for autocorrelation by using graphical
inspection, Durbin-Watson test, and Breusch-Godfrey test, since autocorrelation will
underestimate the true standard deviation (Gujarati:2003:455). Since we will use vector
autoregressive models to analyse our data, the presence of autocorrelation only has influence on
the standard deviation and not on our results for analyzing the relationship between CDS spreads
and equity prices.
36
7.3 Stationarity
In time series data a strong relationship between two variables that is not caused by a real
underlying casual relationship can be a problem. This problem is called spurious correlation and
if a regression is made and the variables are spurious correlated it is called a spurious regression.
A spurious regression is a regression that looks correct (i.e. high R2 values F-test rejects R2= 0
and significant t-values) but when taking a closer look there is no relationship between Y and X
what so ever (La Cour:2007). Spurious correlation can be caused by non-stationary time series
data.
A time series is said to be stationary if its mean and variance are constant over time and if the
value of the covariance between the two time periods depends only on the distance between the
two time periods and not the actual time at which the covariance is computed
(Gujarati:2003:797). This means that if mean, variance and autocovariance remain the same no
matter at what time we measure them the data is stationary, otherwise they follow a random walk
and have a unit root.
When the original data is stationary it is said to be stationary at level I(0). If the original data is
not stationary but is transformed stationary by taking first difference – the time series is said to
be stationary at I(1).
A unit root test need to be performed to test if the time series data is stationary. We perform the
Argumeted Dickey-Fuller (ADF) test. The ADF test is an extension of the Dickey-Fuller (DF)
test and to understand the ADF we will briefly discuss the DF test.
The null-hypothesis in the DF test looks like the following (Gujarati:2003:815):
Yt is a random walk: ∆? 1? & @
Yt is a random walk with drift: ∆? A & 1? & @
Yt is a random walk with drift around stochastic trend: ∆? A & A( & 1? & @
The ADF test consists of estimating the following regression (Gujarati:2003:817):
∆? A & A( & 1? & B< ∆? & D

<#
37
The null hypothesis in all four tests is that δ = 0 , there is a unit root and the time series is
therefore non-stationary15.
The ADF test includes possible serial correlation in the error terms by adding the lagged
difference terms of the regressand (Gujarati:2003:818).
If the results of the unit root tests are showing that the time series data are non-stationary, we
have to transform the non-stationary time series in order to make it stationary. A way to do this is
by taking the first difference of the time series (Gujarati:2003:820). Since taking the first
difference of time series data can throw away some information, it should only be done after
checking for co-integration (Studenmund:2006:439). Co-integration means that despite being
individually non-stationary a linear combination of two or more time series can be stationary,
that is, there is a long-term relationship between the two variables.
In order to check whether or not our data is co-integrated we use Johansen’s methodology for
modelling co-integration (Zivot:2003:445-446). This methodology is a likelihood ratio tests for
the number of co-integrating vectors (r) that should be included in the Vector Autoregressive
model. The hypotheses for the Johansen’s Trace statistic are:
H0(r): r = r0
H1(r0): r > r0
Johansen proposes a sequential testing procedure that consistently determines the number of co-
integration vectors. The way to do the testing is by first test H0 (r0 = 0) against H1 (r0 > 1). If
null-hypothesis is not rejected we conclude that there is no co-integration vectors among the n
variables in our VAR-model. If the null is rejected it is concluded that there is at least one co-
integration vector and continues to test H0 (r0 =1) against H1 (r0 > 1). If this null is not rejected
then it is concluded that there is only one co-integration vector, but if the null is rejected then it
is concluded that there is at least two co-integration vectors. The way to determine whether or
not the null hypothesis should be rejected is by comparing the trace test value with the critical
value. If the trace test value is higher than the critical value the null hypothesis is rejected and
there is at least one co-integration vector (Brocklebank:2003:276).
15 The terms non-stationarity, random walk, and unit root can be treated as synonymous (Gujarati:2003:802)
38
If the time series are co-integrated (Gujarati:2003:823), then there is no need to transform the
time series. That is, if the time series is co-integrated spurious regression can be avoided even
though the dependent variables are non-stationary.
7.4 Model selection

The next step after performing all the tests above is to decide which model to use to analyse the
relationship between the equity market and the CDS market. The choice is between analyzing
our data in a vector autoregressive (VAR) model or in a vector error correction model (VECM).
7.4.1 VAR models

In VAR models several series are modelled in terms of their own past and could look like the
following16:
E 1$ & B E & F G & B( E( & F( G( & )
and
G H$ & A E & I G & A( E( & I( G( & )
Where each equation contains an error that has zero expected value given past information on y
and z (Wooldridge:2009:649). As Fung (2008) the empirical form of the VAR model we will use
in this study looks like the following:
N N
! B & JK +L@ EK & MK !K & D

K# K#
and
N N
+L@ E B( & J(K +L@ EK & M(K !K & D(

K# K#
Where CDS is the CDS spreads and equity is the equity price.
Before estimating the above equations the maximum lag length, k, has to be decided. If we
include too few lags, it will lead to specification errors, whereas too many lag terms will
16
We omit the part corresponding to the intercept term, since it is irrelevant in subsequent calculations. This also
means that we will not take it into account when analyzing the relationship between CDS spreads and equity prices.
39
consume degrees of freedom and introduce the possibility of multicollinearity
(Gujarati:2003:849). Schwarz Information Criterion (SIC) will be used to decide the number of
lags by choosing the model that gives the lowest values of this criterion. SIC is a stricter measure
than e.g. AIC and punish harsher for including more lags (Gujarati:2003:538).
7.4.2 VECM model

If the time series data is co-integrated the VAR-model will be extended with an error correction
term. Forte and Lovreta (2008) also used the basis of the VECM framework when analyzing the
price discovery relationship in the CDS and stock market. A regression on two co-integrated
variables is an estimate of the equilibrium relationship along with a residual, which is a measure
of the extent to which these variables are out of equilibrium. To estimate the VECM model
economic theory says that the current change in the dependent variable should be affected, not
only by the current change in the independent variable, but also by the extent to which these
variables were out of equilibrium in the preceding period (Studenmund:2006:440). This should
be taken into account when formulating a dynamic relationship between the variables. As Forte
and Lovreta (2008) our empirical form of the VECM we will use in this study looks like the
following:
Δ+L@ E B & P +L@ E 1$ 1 !

Q Q
& AK Δ+L@ EK & FK Δ!K & D

K# K#
and
Q Q
Δ! B( & P( +L@ E 1$ 1 ! & A(K Δ+L@ EK & F(K Δ!K & D(
K# K#
Where ∆CDS and ∆equity is change in CDS spreads and equity price and δ0 and δ1 is the long-
run relationship17. The loadings λ1 and λ2 represent the adjustment coefficients that measure
how quickly CDS spreads and equity price adjust to eliminate the deviations from the long-run
equilibrium (Forte & Lovreta:2008:16-17).
17
The t values and p-values corresponding to the parameters (CDS spreads and equity prices) in vector error
correction term are missing since the parameters have non-Gaussian distributions (SAS 9.1 – help and
documentation)
40
7.5 Granger Causality
The models allow us to test if equity prices Granger cause CDS spreads or if CDS spreads
Granger cause equity prices after controlling for past CDS spreads/equity prices
(Wooldridge:2006:650).
The idea behind the Granger test is:
“…time does not run backward. That is, if event A happens before event B, then it is possible that
A is causing B. However it is not possible that B is causing A. In other words, events in the past
can cause events to happen today. Future events cannot.”
( Gujarati:2003:696)
We can use the Granger Causality test to examine if a change in CDS spreads (equity prices)
cause a change in equity prices (CDS spreads). Then CDS spreads (equity prices) should help
predicting equity prices (CDS spreads) and not vice versa18.
The test is important for our study since it can tell us about the direction of the relationship
between CDS spreads and equity prices. Is equity prices leading CDS spreads or the other way
around or is there no causality between the two markets?
The testing strategy is a two-way causation: CDS spread Granger cause equity prices and equity
prices Granger cause CDS spreads.
The null-hypotheses for this test are as following:
CDS spreads
H0: Equity prices do not Granger cause CDS spreads – CDS spreads are only influenced
by themselves
H1: Equity prices Granger cause CDS spreads
Equity prices
H0: CDS spreads do not Granger cause equity prices - Equity prices are only influenced
by themselves
18 It should be noted that Granger causality does not necessary say anything about real causality. All the variables
might react to some non-modeled factor and if the response of Xt and Yt is staggered in time there will be Granger
causality even though the real causality is different. But it cannot be solved. (Sørensen:2005:2)
41
H1: CDS spreads Granger cause equity prices
We can conclude that one of the variables leads the other if only one of the hypotheses is
rejected.
The Granger Causality test assumes that the error terms are not serial correlated between the two
time series and that the data is stationary – otherwise the test results cannot be trusted.
(Gujarati:2003:697). We check for serial correlation by looking at Durbin Watson-test, which is
also mentioned in section 7.2.
7.6 Gonzalo and Granger measure

If we find that our data is co-integrated and therefore use VECM-modelling we will also
calculate the Gonzalo and Granger measure (GG).
When using VECM modelling adjustment coefficients are estimated λ1 and λ2. Gonzalo and
Granger (1995) proposed a measure of the individual market contributions to price discovery
based on the ratio between the two adjustment coefficients (Forte:2008:18).
P(
RR
P( P
We define λ1 is the adjustment coefficient for the VECM model with CDS spread as dependent
variable and λ2 is the adjustment coefficient for the VECM model with equity prices as
dependent variable – the lower GG the higher the equity market contribution and the lower the
CDS market contribution to price discovery. Due to this GG can be used to predict the lead/lag
relationship between the CDS and equity market.
7.7 Method overview

So to sum up (figure 7), if our data is non-stationary and co-integrated we use a VECM-model,
GG measure, and Granger Causality test19 and if our data is stationary we use VAR-model and
Granger Causality test.
19
A study made by Toda & Phillips (1993) found that the result of the Granger Causality test can be questioned
when made on co-integrated data if the right number of ranks are not specified. We assume that we have specified
the right number of ranks. If there are differences in the results between the Granger Causality test and the GG test,
we use the result of the GG test.
42
Figure 7: Method overview
stationary VAR Granger causality
data
Granger causality
co-integrated VECM
and GG measure
non-stationary
stationary
VAR -
not cointegrated Granger causality
1.difference
8 Data description
Our initial sample is daily closing equity prices and CDS spreads for firms in S&P 500 from
January 1st 2002 . We started initial with the intention of using a time period from 2002 and forth
but after the data from Bloomberg20 was downloaded and sorted we realized that we did not have
enough CDS spreads data and therefore decided to start our time period 2nd January 2004 where
the amount of CDS spread data was more satisfying.
This means that the data is in the time period: January 2nd 2004 to May 1st 2009.
We chose to take the firms in S&P 500 from January 1st 2002 since the S&P 500 had its closing
low in 2002 after the 2000-2002
2002 bear market. The reason why we do not analyse
analys on the data
from the firms that are in S&P 500 in 2009 is because we would get a survivorship bias for the
firms that survived the credit crisis. Moreover CDS’ are involved in the credit crisis and it is
therefore also interesting to have the firms that cracked under the crisis in the analysis.
As mentioned our data was downloaded from Bloomberg and we downloaded daily closing
prices and spreads.
20
Bloomberg is a provider of financial news and information. It is possible to get trading news, analyst coverage,
and historical and real time price data (Bloomberg.com).
43
The same firm may have different CDS with different maturities but we chose to focus on 5-year
CDS spreads since these are the most liquid and most used. Since our data is true market quotes
we can directly compare equity prices with CDS spreads and they are consistently updated on a
daily basis.
Even though we got the data directly from Bloomberg the sorting process of the data was quite
extensive. Because we considered such a long period the firms in our index did not behave static.
If firms changed their name in the period they were simply kept by their new name. If a firm got
acquired or merged with another firm in our index the two single firms are represented in the
index until the merger/acquisition and after the merger/acquisition the combined firm is
represented. If a firm got acquired or merged with a firm outside our index the firm is
represented in the index until the merger/acquisition and is thereafter removed from our index. If
a firm in our index acquired a firm outside our index the firm will still be represented in our
index. If a firm chose to go private in the period it is represented in the index until the
privatization.
Next step was to sort the data so only the firms with CDS are used in our analysis and we made
sure that the CDS was on the actual firm quoted in the index and not on subsidies. This means
that to every equity price there is a corresponding CDS spread. More over not all our firms had a
CDS when the time period started and they are first let into the index when they got a CDS. So at
all times there are a corresponding amount of CDS spreads and equity prices. A downside of this
is that we do not have a constant number of firms in our index.
Our sorting resulted in a reduction of our initial dataset of 500 firms to 265 firms21. But still a
quite large data set as we have 1,349 daily observations from 265 firms totalling to 357,485
observations22.
Bloomberg quotes CDS prices and not CDS spreads. Therefore it was necessary to download
daily closing rate for LIBOR from Bloomberg, which we chose to use for the risk free rate.
Theoretically the risk-free rate is determined as the yield on a government security. But
according to Hull (Hull:2007:263) derivative traders have a different definition of the risk-free
rate. They use the LIBOR23 -zero curve as the risk-free rate as they think the LIBOR/swap rate
correspond to their opportunity cost of capital. The LIBOR zero-curve is the rate that is used in
21 The number of companies at the time where all companies have a CDS.
22 To see the names of the companies in our index look at appendix 1
23 LIBOR = London InterBank Offer Rate
44
the inter-bank market as it is the rate of interest banks lend to each other at (Das:2005:462). The
LIBOR is usually higher than the treasury rate, since it is not considered to be totally risk-free as
banks are rated lower than countries (AA vs. AAA). All in all we chose to use the LIBOR as the
risk-free rate to create a more realistic picture and subtract the LIBOR from our CDS prices.
The third step is to make the indices we are going to use in our analysis. Like Bystrøm (2005)
and Fung (2008) the indices we create are equally weighted with no re-balancing. The actual
weight of the individual equities varies slightly over time, but we see this investment strategy as
more realistic than a daily re-balancing of the portfolio.
The overall index is created with all the prices and quotes from the firms we have CDS spreads
for. Hereafter we split our data set up in MSCI sectors (Communication, Consumer Cyclical,
Consumer Non-cyclical, Energy, Finance, Industry, Materials, Technology, and Utility)24 and in
rating groups (Investment grade (IG) and high yield (HY)). In the split on ratings we only use the
data for the firms that are rated for comparison reasons, which mean that 261 out of 265 are
included.
We started with an index that consisted of 500 firms and are now left with only 265. This means
that we have lost 47% in our sorting process. To see how this loss of data is distributed over
sectors we compare with how the firms are distributed over sectors in S&P 500 and compare
with our data. Finance, energy, utility and communication have the same placement in the weight
distribution as the 4th, 7th, 8th and 9th largest sectors respectively. In our index consumer non-
cyclical has become the largest represented sector while it was the 3rd largest in S&P 500 leaving
Consumer cyclical as the 2nd largest. Materials has only changed a bit which not can be said for
technology. Technology is in S&P 500 the 2nd largest sector represented but is in our index the
6th largest sector. All in all our index is only 53% of the S&P 500 and this have also changed the
distribution of the sectors represented. We have generally less firms in the individual sectors and
it could be feared that this might give some bias in the data as some indices are constructed with
few firms and therefore they might be more dependent on firm specific development.
The same is valid when considering the rating categories. There are 204 firms represented in
investment grade and only 57 represented in high yield25. This means that there are over 3 times
24 Normally health care is also a part of the sectors but we do not have any observations in this industry due to our
sorting requirements. For a short description of each sector see appendix 1
25
4 companies are not rated and therefore not considered when splitting data on rating.
45
as many firms in the investment grade this is not surprising as we considered S&P 500 firms that
include many of the largest corporations in US.
Table 0: S&P 500 sector distribution

Sectors S&P 500 in 2002 Our data
Sector weight Sector weight compared Sector weight compared
to S&P 500 with our data
Communication 2.6% 1.4% 2.6%
Consumer cyclical 17.4% 11.0% 20.8%
Consumer non-cyclical 15.8% 11.8% 22.3%
Energy 4.8% 3.4% 6.4%
Finance 15.0% 5.6% 10.6%
Industrials 13.6% 8.4% 15.8%
Materials 7.4% 4.0% 7.5%
Technology 16.0% 3.8% 7.2%
Utilities 7.4% 3.6% 6.8%
All sectors 100.0% 53.0% 100.0%
9 Empirical analysis
The aim of this chapter is to test the relationship between equity prices and CDS spreads. In
section 6 we stated 5 hypotheses and we will accept or reject these throughout the analysis. The
hypotheses were created using the theoretical background stated in section 4 and the previous
empirical analyses by other researchers stated in section 5. The methodology we will apply to
our data making the testing of the hypotheses possible is stated in section 7.
We will start by testing the overall relationship between equity prices and CDS spreads at an
index level in section 9.1. After this we will test the relationship more thoroughly at the overall
index level by different robustness tests section 9.2 to 9.5. We make the robustness tests by
including exogenous variables, splitting our data in quartiles, and separating our time period in
before and after the beginning of the credit crisis.
Furthermore we will test whether the relationship is depending on ratings and sector in section
9.6-9.7 and 9.8 respectively.
If the result of the above test indicates that the relationship between equity prices and CDS
spreads is negative and that equity prices influence CDS spreads and not the other way around
we will create a model that also include equity volatility. The Merton model (section 4.5)
indicates that equity prices influence CDS spreads negatively and that equity volatility influence
CDS positively and it could be interesting to test this as well.
46
At last we will consider and compare all the results and conclude on the relationship between
equity prices and CDS spreads.
9.1 Index26
To start with we examine the overall relationship between equity prices and CDS spreads by
examine all our data.
We calculate the standard deviation and mean for the index (table xx). The mean for equity
prices is 42.350 while the mean for CDS spreads is 106.480. The standard deviation for equity
prices is 6.830 while the standard deviation for CDS spreads is 106.40. We find that CDS
spreads are 16 times more volatile than equity prices but besides that we cannot say anything
about the direction of the relationship. To investigate this further we estimate the Spearman Rank
correlation.
Table 1:Index – decriptive

statistics
Index
CDS Equity
mean 106.480 41.350
St. Dev 106.401 6.830
To test if there is a negative relationship between CDS spreads and equity prices and thereby test
H1 we consider the graphic relationship between CDS spreads and equity prices by plotting the
respectively indices against each other. As seen from the figure 8 the relationship is negative
since the slope of the line is negative. When looking at the left side of the figure we see that CDS
spreads are relatively constant, whereas equity prices are increasing. This indicates that CDS
spreads or equity prices have not been able to price the credit risk correctly.
26 This approach is similar to Bystrøm (2005) and Hartmann (2008)
47
Figure 8: Interaction between CDS and equity index
60
50
Equity price (USD)

40
30
20
10
0
0 100 200 300 400 500 600
CDS spread (USD)
The Spearman rank correlation also supports the negative relationship, as we find it to be -
46.7%. This is quite strong and this indicates that we cannot reject H1 since we find the
relationship to be negative. We will further examine this by more sophisticated models.
Table 2: Index - correlation

Correlation
Index -0.467
We will analyse the intertemporal co-movement of CDS spreads and equity prices at index level.
More specifically we aim to explain current equity prices and CDS spreads with a 2-dimensional
VAR model or in the case of co-integration with a VECM model.
We do this to test for a negative relationship between CDS spreads and equity prices (H1) and to
test if equity prices lead CDS spreads (H2). To start with we consider stationarity of the original
data which is rejected by the unit root test (appendix 2, table 1.1, 1.2, 3.1 and 3.2) and likewise
the existence of co-integration is rejected according to Johansen’s co-integration test (appendix
2, table 5.1). The two time series are stationary at 1st difference according to unit root test
(appendix 2, table 1.3, 1.4, 3.3, and 3.4). For these reasons we estimate the relationship with a
48
VAR model where optimal number of lags is found to be two according to Schwartz Information
Criteria27.
According to the Granger Causality test (appendix 2, table 5.3) we cannot reject that equity
prices Granger cause CDS spreads, but can reject that CDS spreads Granger cause equity prices.
Therefore equity prices lead CDS spreads but not the other way around. Since the residuals in the
VAR model are not serial correlated (appendix 2, table 5.5) we can trust this result.
Table 3: Index – Granger Causality test

Equity prices Granger CDS spreads Granger
cause CDS spreads
cause equity prices
Index Yes* No*
* indicates no serial correlation in disturbance terms
9.1.1 Model with CDS spreads as dependent variable

To further examine the relationship between equity prices and CDS spreads we consider the
estimated models. To start with we consider the model with CDS as dependent variable. All the
estimates are significant except 2nd lag for the estimate for CDS spreads. The overall F-test is
also rejected (appendix 2, table 5.4) and the overall explanatory power of the model is 34.17%.
Based on our findings in section 9.1 and our acceptance of H1 we expect to find that equity
prices have a negative influence on CDS spreads. In table 4 we see that the estimates for CDS
spreads are positive while the estimates for equity prices are negative - so when equity prices
increase the CDS spreads decrease, which is in line with our expectations. Furthermore, the
negative influence of equity prices on CDS spreads is more than two times stronger in the 1st lag
than the 2nd lag.
Table 4: Index – VAR CDS

Index CDS as dependent
CDS (t-1) 0.375*
EQ (t-1) -2.260*
CDS (t-2) 0.042
EQ (t-2) -0.835*
2
R 34.17%
* indicates significance at 5% level
27
The SIC-lag estimation is made in SAS 9.1, but results are not enclosed due to the extensiveness of this
optimization.
49
9.1.2 Model with equity price as dependent variable
The picture is different when considering the model with equity as dependent variable. As
mentioned the Granger Causality test indicated that CDS spreads do not influence equity prices.
This is further emphasised when considering the estimates. We find that only the estimates for
equity prices are significantly different from zero – which further confirms that CDS spreads do
not have a significant influence on equity prices. The F test is rejected (appendix 2, table 5.4) but
the R2 is only 1.75. The results of the estimated model are consistent with the results of the
Granger Causality test.
Table 5: Index – VAR EQ

Index EQ as dependent
CDS (t-1) 0.004
EQ (t-1) -0.105*
CDS (t-2) -0.004
EQ (t-2) -0.073*
2
R 1.75%
*indicates significance at 5% level
From the above analysis we find the existence of a negative relationship between CDS spreads
and equity prices as the equity price estimates are negative signed in the VAR model with CDS
as dependent. Furthermore we find that equity prices lead CDS spreads and not the other way
around, which means that we cannot reject H2 that equity prices lead CDS spreads. We continue
to further test the robustness of the results.
9.2 Exogenous variables

To further test the robustness of our results we check for a potential omitted variable problem by
adding additional explanatory variables in our VAR model (H2.c). As Fung (2004) and Collin
Dufresne (2001) the following exogenous variables are included28:
- Changes in 5-year T-bill rate (RATE) (Yahoo finance).

- Slope of the term structure (SLOPE), which is measured by differences in yield for
maturities between 10-year and 2-year treasuries (US Treasury).
28
A potential omitted variable problem can always be argumented for because the perfect variables to predict e.g.
stock prices are not found. But when including exogenous variables further robustness of our model can be checked.
We do not discus the meaning of the single exogenous variable.
50
- The CBOE volatility index (VIX), which is a key measure of market expectations of near
term volatility conveyed by the S&P 500 equity index option price (CBOE)29.
N N
! B & JK +L@ EK & MK !K & S +ST & D
K# K#
N N
+L@ E B( & J(K +L@ EK & M(K !K & S( +ST & D(
K# K#
The Granger Causality test indicates the same relationship as earlier – it cannot be rejected that
equity prices Granger cause CDS spreads and it is rejected that CDS spreads Granger cause
equity prices. But we have problems with serial correlations for both models. The DW statistics
for the model with CDS spread as dependent variable is 2.044 and for the model with equity
prices as dependent variable it is 2.141 (appendix 3, table 7.5). A problem with serial correlation
is not that surprising since we add more variables to the model. We consider the estimated
models.
Table 6: Exogenous - Granger Causality test

cause CDS spreads cause equity prices
Exogenous Yes No
variable

When considering the VAR model with CDS spread as dependent variable not much has
changed compared with the index model in section 9.1.1. The R2 is only a bit higher at 36.74%
but the signs in the model are the same as well as the significant estimates. The influence from
CDS spreads and equity prices are a bit higher than the index model. Only one of the exogenous
variables is significant (VIX).
29
Since its introduction in 1993 VIX has been considered by many to be a premier barometer of investor sentiment
and market volatility (Fung:2008:16).
51
Table 7: Exogenous – VAR CDS
Exogenous
variables CDS as dependent
VIX (t) -0.254*
TRATE (t) 1.244

SLOPE (t) -0.771
CDS (t-1) 0.372*
EQ (t-1) -2.392*
CDS (t-2) 0.056
EQ (t-2) -0.939*
2
R 36.74%
9.2.2 Model with equity price as dependent variable

The model with equity prices as dependent variable has gained significant more explanatory
power and the R2 has risen from 1.75% to 66.31% compared to the index model in section 9.1.2,
which is consistent with Fungs (2008) experience. We find that all the estimates for the
exogenous variables and the CDS spreads and the overall model are significant. The estimates
for equity prices are not significant. The influence from historical equity prices and CDS spreads
is very low and it seems like the increased R2 is due to the exogenous variables and the
possibility of serial correlation. But this just further confirmes that equity prices are influenced
by other factors than CDS spreads and equity prices.
Table 8: Exogenous – VAR EQ

Exogenous
variables EQ as dependent
VIX (t) 0.195*
TRATE (t) -0.803*

SLOPE (t) 0.538*
CDS (t-1) 0.006*
EQ (t-1) -0.003
CDS (t-2) -0.015*
EQ (t-2) 0.005
R2 66.31%
52
9.2.3 Summary
We have problems with serial correlation in both models but mostly for the model with equity
prices as dependent variable (appendix 3, table 7.5). This means that we cannot trust the Granger
Causality test. But after examining the estimated models the model with CDS spreads as
dependent variable suggest that equity prices influence CDS spreads negatively and this effect is
stronger than any influence from the exogenous variables. The model with equity prices as
dependent variable is more explained by the exogenous variables than CDS spreads. Based on
this we conclude that our initial results are not affected by our robustness test and we can
therefore not reject hypothesis H2.c.
9.3 Quartiles
As stated in hypothesis H3.b CDS spreads from high risk firms should be linked more strongly to
equity prices than CDS spreads from low risk firms. To further test the robustness of our result
and to test hypothesis H3.b we subdivide our data into quartiles, where quartile 1 contains the
25% firms with the lowest CDS spreads, quartile 2 the 25% firms with the second lowest CDS
spreads, quartile 3 contains the 25% of firms with second highest spreads, and quartile 4 contains
the 25% firms with the highest spread.
Table 9: Quartile - descriptive statistics

Quartile 1 Quartile 2 Quartile 3 Quartile 4
CDS Equity CDS Equity CDS Equity CDS Equity
Mean 30.18 43.14 50.83 42.23 97.43 36.98 283.86 43.61
St. Dev 22.1 7.2 41.82 6.47 78.53 6.8 257.48 8.35
We re-calculate the mean and standard deviation for the quartiles. The standard deviation and
mean for CDS spreads increase from quartile 1 to 4. The mean is over 9 times higher in quartile
4 compared with quartile 1. The same is true for the standard deviation, which is almost 12 times
higher in quartile 4 compared with quartile 1. This is not surprising since the quartiles are created
after the size of the average spreads, but we find that the increase from quartile 3 to 4 is
especially steep.
If we consider the mean and standard deviation for equity prices the pattern is not that obvious.
The mean for quartile 1 to 4 is between 36.98-43.16 where the highest mean is in quartile 4 and
the lowest mean is in quartile 3. However, we do find that the mean decreases 15% from quartile
1 to 3 which is in accordance with our expectations – equity prices decrease as CDS spreads
53
increase. The difference in standard deviation between the quartiles is also quite moderate. The
standard deviation is between 6.47-8.35 where the highest is in quartile 4 and lowest is in
quartile 2.
From table 9 we can conclude that CDS spreads in the quartiles are much more volatile than
equity prices. In quartile 1 CDS spreads are 3 times more volatile than equity prices but in
quartile 4 the CDS spreads are 31 times more volatile than equity prices. This pattern is
confirmed graphically (figure 9) where the extreme increase in quartile 4 CDS spreads can be
seen. It can be seen from figure 9 that the equity quartiles actually behave more like what we
expected after mid 2007.
So it will be interesting to see if the relationship between equity prices and CDS spreads holds in
all the quartiles.
Figure 9: Development in equity prices and CDS spreads in quartiles

70 1400
1200 Quartile 1 Qaurtile 2

60
Quartile 3 Quartile 4
50 1000
Equity USD
CDS USD
40 800
30 600
20 400
10 200
0 0
1-2-04 1-2-05 1-2-06 1-2-07 1-2-08 1-2-09 1-2-04 1-2-05 1-2-06 1-2-07 1-2-08 1-2-09
The above figure compares the development of the equity prices and the CDS spreads in the
quartiles indices.
When looking at the equity prices we see that the development for all quartiles is identical. The
equity prices in all quartiles are slowly increasing until mid 2007, where the equity prices then
decreases. Quartile 3 and 4 experience a steeper decrease than quartile 1 and 2.
The development for CDS spreads are more differentiated. All quartiles have basically stable
CDS spreads until mid 2007, where they increase. As can be seen quartile 4 has the biggest
increase and skyrocketed from mid 2007 until beginning of 2009.
From figure 8 above it seems that the relationship is negative, but it is difficult to see how it
varies for the different quartiles. To answer hypothesis H4.c we will perform some extra
54
econometric work. The Spearman Rank correlation also indicates. The correlation in the
quartiles is in the same range as seen in table 10.
Table 10: Quartile -

correlation
Correlation
Quartile 1 -0.551
Quartile 2 -0.518
Quartile 3 -0.523
Quartile 4 -0.542
To further examine the relationship between the CDS spreads and equity prices in quartile 1 to 4
we firstly consider the stationarity of the original data which is rejected for all quartiles by the
unit root test (appendix 4-7, table 1.1, 1.2, 2.1, 2.2) and likewise is the existence of co-
integration rejected in all the quartiles according to Johansen’s co-integration test (appendix 4-7,
table 3.1). The time series are stationary at 1st difference according to unit root test for all the
quartiles. For these reasons the 4 quartiles are estimated by a VAR model. The optimal numbers
of lags are found to be two in all the 4 models according to Schwartz Information Criteria.
According to the Granger Causality test (table 11) we cannot reject that equity prices Granger
cause CDS spreads, but can reject that CDS spreads Granger cause equity prices for all the
quartiles. Therefore equity prices lead CDS spreads but not the other way around. Most of the
residuals in the VAR models are not serial correlated and it is only the models with CDS as
dependent in quartile 1 and 2 there might be some problems with (DW respectively 2.041 and
2.032 – appendix 4-7, table 3.5). Otherwise the results can be trusted.
Table 11: Quartile – Granger Causality test

cause CDS spreads
cause equity prices
Quartile 1 Yes No*
Quartile 2 Yes No*
Quartile 3 Yes* No*
Quartile 4 Yes* No*
Below we will go through the estimated VAR models for the quartiles.
55
Table 12: Quartile VAR CDS

CDS Quartile 1 Quartile 2 Quartile 3 Quartile 4
CDS (t-1) 0.282* 0.329* 0.389* 0.321*
EQ (t-1) -0.409* -0.779* -2.395* -5.353*

CDS (t-2) 0.148* 0.001 -0.023 0.066*
EQ (t-2) -0.268* -0.599* -0.844* -1.826*
2
R 24.04% 22.68% 31.79% 28.74%
We start by consider the models with CDS spreads as dependent variable. From table 12 we see
that all estimates are significant, except the estimates for CDS spreads in the 2nd lag in quartile 2
and quartile 3. The F-test for all models is rejected (appendix 4-7, table 3.4). All estimates for
equity prices are negative, and the estimates for CDS spreads are positive except the 2nd lag in
quartile 3. The R2 for the models is in the range from 22.68% to 31.79%. Based on the statement
in hypothesis 3.b we expect quartile 4 to have the highest R2, but in this case quartile 3 has the
highest R2.
As expected we find that the equity price estimates increase in both lags the higher the quartile
number. The equity price estimate in quartile 4 is 13 times higher than the equity price estimate
in quartile 1. Furthermore, the estimates for equity are more influential in the 1st lag than the 2nd
lag.
It does not seem like there is any pattern when we consider the estimates for the CDS spreads,
other than the estimates in the 1st lag have higher influence than the estimates in the 2nd lag.
9.3.2 Model with equity prices as dependent variable

Table 13: Quartile VAR EQ
EQ Quartile 1 Quartile 2 Quartile 3 Quartile 4
CDS (t-1) 0.025* 0.002 0.007 0.001
EQ (t-1) -0.141 -0.112* -0.071* -0.072*

CDS (t-2) -0.002 0.013 -0.008 -0.002
EQ (t-2) -0.104* -0.063* -0.062* -0.043
2
R 3.13% 1.81% 1.47% 0.8%
We further examine the models with equity as dependent variable. We see that basically all the
equity price estimates are significant (except the 2nd lag in quartile 4), whereas only one CDS
56
spread estimate is significant (1st lag in quartile 1). The F-tests for the models are also rejected
(appendix xx, table xx). The R2 for the models are in the range from 0.8% to 3.13%.
We expect the sign for the equity price estimates to be positive, but they are all negative in the
estimated models. Furthermore we expect CDS spread estimates to be negative, but this is only
valid for the CDS spread estimates in the 2nd lag for quartile 1, 3, and 4.
9.3.4 Summary
The Granger Causality test indicated that equity prices Granger cause CDS spreads and not the
other way around. This is further emphasised by looking at the results from the estimated VAR
models. The VAR models with CDS spreads as dependent variable have significant estimates,
high R2 and the influence of the estimates in the dependent variable increases the higher the
quartile number whereas the estimates for CDS spreads in the VAR models with equity prices as
dependent variable are not significant and the R2 is low. These observations indicate that we
cannot reject hypothesis 3.b, and that the strength of the relationship between CDS spreads and
equity prices becomes more pronounced the higher the CDS spreads in the underlying index.
9.4 Splitted time periods

The two time series are splitted in the periods 2nd January 2004 to 8th August 2007 and 9th
August 2007 to 1st May 2009 and the models are re-estimated. The reason behind splitting the
data on 9th August 2007 is due to the fact that 9th August 2007 was the day that BNP Paribas30
announced that it froze the deposits in its three “subprime”-funds, since it was no longer able to
value the underlying assets. Simultaneously the liquidity disappeared on the financial markets in
both Europe and USA. The money market rates skyrocketed and banks were no longer willing to
lend money to each other (Berg&Bech:2009:46)31. The action by BNP Paribas was the last straw
in an already cracked foundation. This was the actual beginning of the financial crisis, which is
also confirmed by figure 10. We consider the period after 9th August 2007 to be a deteriorating
and volatile market, whereas the period before 9th August 2007 is considered to be an improving
and stable market.
30
BNP Paribas is the largest bank in the Euro zone and among the 6th largest banks world wide (BNP Paribas:2009)
31
The actual date of the beginning of the crisis is still discussed and probably impossible to determine to one
specific date, but we will use 9th August 2007
57
Figure 10: Development in CDS spreads and equity prices
600
500
400
USD
300
200
CDS Index EQ Index
100
0
01-02-04 01-02-05 01-02-06 01-02-07 01-02-08 01-02-09
We split the data set in two to test if there is a difference in the relationship between CDS
spreads and equity prices in the two periods (H4.a). As it can be seen from figure 10 the CDS
spreads and equity price are at the same price level from 2004 to mid-2007. But in mid-2007 the
effect of the credit crisis is expressed in CDS spreads as they are skyrocking. The effect in the
equity market is by no means so extreme.
Table 14: Time periods descriptive statistics -

mean
Mean Before After Index
CDS 52.95 217.82 106.40
Equity 42.19 39.61 41.35
The mean for CDS spreads increases 4 times, whereas equity prices decrease 0.90 times. The
standard deviation of the equity index increases 1.7 times from before till after the beginning of
the crisis. But the standard deviation of the CDS spreads increases with 12 times. It is further
confirmed that CDS spreads react more strongly in volatile periods than equity prices.
Table 15: Time period descriptive statistic –

standard deviation
Std Before After Index
CDS 9.84 127.75 106.40
Equity 5.28 9.02 6.83
58
The Spearman Rank correlation (table 16) is at -97.3%, which is 1.4 times higher after the
beginning of the crisis compared with before the beginning of the crisis. Both the correlation for
before and after the beginning of the crisis is higher than the correlation for the whole period.
Table 16: Time periods

-correlation
Correlation
Before -0.716
After -0.973
Index -0.467
This is a quite unique opportunity to stress-test our results by examining if the previous found
relationship holds in a very volatile period.
9.4.1 2nd January 2004 to 8th August 2007 (Before)

To examine the relationship between the CDS spreads and equity prices in the period 2nd January
2004 to 8th August 2007 we firstly consider stationarity of the original data, which is rejected by
the unit roots test (appendix 8, table 1.1, 1.2, 3.1 and 3.2) and likewise the existence of co-
integration is rejected according to Johansen’s co-integration test (appendix 8, table 5.1). The
two time series are stationary at 1st difference according to unit root test (appendix 8, table 1.3,
1.4, 3.3, and 3.4). For these reasons we estimate the relationship with a VAR model where the
optimal number of lags are found to be two according to Schwartz Information Criteria.
cause CDS spreads, and cannot reject that CDS spreads Granger cause equity prices. It seems
that there is a two-way relationship between CDS spreads and equity prices. Since the DW
statistic is 1.91 for CDS spreads we cannot trust this result (appendix 8, table 5.5). It is not a
severe serial correlation but it should be kept in mind. Moreover it should be remarked that the
results of the Granger Causality test for equity are borderline results (appendix 8, table 5.5).
Table 17: Before – Granger Causality test

Before Yes Yes*
59
9.4.1.1 Model with CDS spreads as dependent variable
To further examine the relationship we consider the estimated models. To start with we consider
the model with CDS spreads as dependent. We find that all the estimates in the model are
significant and the F-test is also rejected. The overall explanatory power of the model is 22.37%
(appendix 8, table 5.4).
The estimates have the expected signs, that is, the estimates for equity prices are negative and the
estimates for CDS spreads are positive. The negative influence of equity prices on CDS spreads
is highest in 1st lag as the influence 0.75 times lower in the 2nd lag. The results are corresponding
with the results of the Granger Causality test despite the problems with serial correlation.
Table 18: Before – VAR CDS

Before CDS as dependent
CDS (t-1) 0.232*
EQ (t-1) -0.544*
CDS (t-2) 0.187*
EQ (t-2) -0.413*
2
R 22.37%
9.4.1.2 Model with equity price as dependent variable

But as mentioned the result that CDS spreads Granger cause equity prices is borderline and this
is further confirmed by the estimated model with equity as dependent variable. We find that the
only significant estimates are in the 1st lag of CDS spreads and in the 2nd lag of equity prices.
The overall significance of the model is also rejected but the result is borderline (0.0508 –
appendix 8, table 5.4). The overall explanatory power of the model is only 1.04%.
Table 19: Before – VAR EQ

Before EQ as dependent
CDS (t-1)
-0.033*
EQ (t-1) -0.015
CDS (t-2) -0.009
EQ (t-2) -0.069*
R2 1.04%
60
9.4.1.3 Summary
We can still conclude that equity prices lead CDS spreads even though the results are not as clear
as the results for the overall market index. The results for the model with CDS spreads as
dependent variable are weaker compared with the overall index model as the size of the
estimates for equity prices is lower as well as a lower R2. The Granger Causality test indicates
that a two-way relationship exists between CDS spreads and equity prices. But due to low R2s,
insignificant estimates, acceptance if the F-tests and the fact that the result was borderline we
conclude that the two-way relationship is too weak to be considered important. That is, equity
prices lead CDS spreads.
9.4.2 9th August 2007 to 1st May 2009 (After)

To examine the relationship between CDS spreads and equity prices in the period 9th August
2007 to 1st May 2009 we firstly consider the stationarity. As earlier we find that the original data
is not stationary but we cannot reject the existence of co-integration according to Johansen’s co-
integration test and therefore the relationship is estimated using VECM modelling (appendix 9,
table 1.1, 1.2, 3.1, 3.2, 5.1). The optimal number of lags is found to be 2 according to Schwartz
Information Criteria.
According to the Granger Causality test we cannot reject that equity prices Granger causes CDS
spread but can reject that CDS spreads Granger cause equity prices. The result for equity prices
can be trusted but there are a bit of serial correlation in the model with CDS as dependent
(2.0988 – appendix 9, table 5.7)
Table 20: After – Granger Causality test

After Yes No*32
There are some problems with serial correlation so the Granger causality test cannot be trusted
but the Gonzalo & Granger statistic also indicate that equity prices is leading CDS spreads.
32
This is further emphasised by a GG value of 0.008
61
9.4.2.1 Model with CDS spreads as dependent variable
Table 21: After – VAR CDS

After CDS as dependent
CDS (t-1) 0.413*
EQ (t-1) -2.123*
2
R 38.23%
To further examine the relationship we consider the estimated models. When considering the
VECM model with CDS spread as dependent variablewe find that the two estimated coefficients
are significant. The model seems quite strong as the R2 is 38.23% and it cannot be rejected that
the overall model is significant. Moreover, the estimates have the right signs and the influence
from historical equity prices is more than 5 times stronger than the influence from historical CDS
spreads.
9.4.2.2 Model with equity price as dependent variable
Table 22: After – VAR EQ

After EQ as dependent
CDS (t-1)
0.008
EQ (t-1) -0.136*
R2 22.7%
The estimated model with equity price as dependent variable, further confirms the result from the
Granger and GG test. The model shows that the influence from equity prices is 17 times stronger
than the influence from CDS spreads and only the estimate for equity prices is significant. The
overall explanatory power of the model is quite high at 22.7% but it seems that most of the
explanatory power comes from equity prices. We cannot reject that the overall model is
significant but the result is quite borderline at 0.0418 (appendix 9, table 5.7).
9.4.2.3 Summary
We find stronger evidence for equity prices lead CDS spreads than the other way around. Since
we find that the two time series are co-integrated it means that the two time series are driven by
the same common factor in the long run (Forte:2008:15). This actually suggests that the
relationship between CDS spreads and equity prices is stronger in the more volatile period, that
62
is in the period after the beginning of the crisis. Forte (2008) suggests that the long-term
relationship means that credit risk is priced equally in the equity market and the CDS market in
the long run.
We cannot reject hypothesis 4.a, since the actual estimates have a bigger impact on the CDS
spreads after the beginning of the crisis. Moreover, the R2 is higher e.g. the explanatory power of
the model after the beginning of the crisis is higher than before the beginning of the crisis.
9.5 Time periods split on quartiles

In the period before the crisis we found a weak evidence of a two-way relationship. In order to
analyse this result further, we have split the two time periods into quartiles, where quartile 1
contains the 25% firms with the highest CDS spreads, quartile 2 contains the 25% firms with the
second highest CDS spreads and so forth, to see if we find any indication of a two-way
relationship again.
Table 23: Time periods quartile – descriptive statistics

BEFORE AFTER
Mean St. dev. Mean St. dev.
CDS
Quartile 1 20.017 7.595 51.324 26.878
Quartile 2 30.713 7.629 92.677 51.711
Quartile 3 59.132 13.713 177.073 95.994
Quartile 4 152.635 25.798 556.804 304.206
Equity
Quartile 1 42.246 6.062 45.005 8.846
Quartile 2 41.971 5.246 42.758 8.450
Quartile 3 38.238 4.990 34.354 8.982
Quartile 4 46.935 4.798 36.702 9.805
The mean and standard deviation for the quartiles in the two periods are seen in table 23. As
expected the mean for CDS spreads are increasing the higher the quartile. That is, mean CDS
spread is lowest in quartile 1 and highest in quartile 4. This is true for both before and after the
beginning of the crisis. Before the beginning of the crisis the mean in quartile 4 is 7.5 times
higher than the mean in quartile 1, whereas the mean in quartile 4 is almost 11 times higher than
quartile 1 after the beginning of the crisis. This indicates that the high CDS spreads react more
strongly to deteriorating market conditions.
63
As expected the standard deviation also increases from quartile 1 to quartile 4. Before the
beginning of the crisis the standard deviation for quartile 4 is 3.4 times higher than the standard
deviation in quartile 1, whereas the standard deviation in quartile 4 is more than 11 times higher
than in quartile 1 after the beginning of the crisis. This indicates that the high CDS spreads
become more volatile in deteriorating market conditions. The level of the standard deviation is
on average 7 times higher in the period after the beginning of the crisis than before.
When studying the means and standard deviations for the equity price quartiles we expect to find
that the higher the quartile (i.e. CDS spreads) the lower the equity price. This turns out not to be
the case.
From table 23 we see that the difference in the mean for equity prices is not so high as for CDS
spreads. When looking at the table it is notable that quartile 4 has the highest mean before the
beginning of the crisis, which is the opposite of our expectations. After the beginning of the
crises quartile 4 is the 2nd lowest, which is more in line with our expectations.
We expect the standard deviation to increase from quartile 1 to quartile 4, since higher quartile
(i.e. higher spreads) means more risk and therefore higher standard deviation. Surprisingly the
standard deviation is decreasing from quartile 1 to quartile 4 before the beginning of the crisis.
After the beginning of the crisis the standard deviation behave according to our expectations, that
is, it is increasing from quartile 1 to quartile 4. The level of the standard deviation has on average
increased 1.7 times from before the crisis began till after the crisis began, which is nothing
compared to the standard deviation of CDS spreads.
Table 24: Time periods quartiles

- correlation
Correlation
Before After
Quartile 1 -0.916 -0.929
Quartile 2 -0.883 -0.924
Quartile 3 -0.711 -0.926
Quartile 4 -0.107 -0.978
Before the beginning of the crisis the correlation between CDS spreads and equity prices in
falling the higher the quartile. This could indicate that a mispricing in credit risk is present. The
correlation decreases from -0.711 in quartile 3 to -0.107 in quartile 4, which is notable. !0.7% is
much smaller than what we have found earlier. After the beginning of the crisis the correlations
64
in the 3 first quartiles are basically the same (-0.92), whereas the correlation in quartile 4 is
rather high at -0.978.
From the above analysis we find that CDS spreads react more strongly to changes in market
conditions than equity prices, which is also in line with figure 9 in section 9.3. To further
examine the relationship we consider the estimated models.
9.5.1 Before the beginning of the crisis 2nd January 2004 – 8th August 2007
To examine the relationship between CDS spreads and equity prices in the quartiles before the
beginning of the crisis, we firstly consider the stationarity of the original data, which is rejected
by the unit root test (appendix 10-13, table 1.1, 1.2, 2.1, 2.2) and likewise the existence of co-
integration is rejected according to Johansen’s co-integration test (appendix 10-13, table 3.1).
The time series for all the quartiles are stationary at 1st difference according to unit root test
(appendix 10-13, table 1.3, 1.4, 2.3, 2.4). For these reasons we estimate the relationships with
VAR models. We find that the optimal lags for the 4 models are two according to Schwartz
Information Criteria. For the total period section 9.1 we also found that the models should be
estimated by VAR(2) models.
Table 25 gives the results of the Granger Causality test. We cannot reject that equity prices
Granger cause CDS spreads in all quartiles. We can reject that CDS spreads Granger cause
equity prices in quartile 1 to 3, but cannot reject that CDS spreads Granger cause equity prices in
quartile 4. That is, there seems to be a two-way relationship between CDS spreads and equity
prices in quartile 4.
Table 25: Before quartiles – Granger Causality test

Before cause CDS spreads cause equity prices
Quartile 1 Yes* No*
Quartile 2 Yes No*
Quartile 3 Yes No*
Quartile 4 Yes Yes
The test results for the Granger Causality test can only be trusted if the disturbance terms are not
serial correlated. In table 25 we see that we can trust that equity prices Granger cause CDS
spreads in quartile 1 and that CDS spreads do not Granger cause equity prices in quartile 1 to 3.
The serial correlation is not severe as the DW statistics are between 1.912 and 2.021 (appendix
10-13, table 3.5), but it is still present and should be taken into account when discussing the
65
To further examine the relationship we consider the estimated models
9.5.1.1 Models with CDS spreads as dependent variable

We start to examine the models with CDS spreads as dependent variable. From table 26 it can be
seen that all the estimates are significant and the F test for all the models are rejected (appendix
10-13, table 3.4). All the estimates for equity prices are negative and all the estimates for the
CDS spreads are positive, which is according to our expectations.
number. This suggests that equity prices influence on CDS spreads increases the higher the CDS
spread. In quartile 1 and 2 the estimates for equity price in the 2nd lag is more influential than the
estimates in the 1st lag and the opposites is true for quartile 3 and 4, which we have not found
earlier in this paper.
Table 26: Before quartiles - VAR CDS

Before CDS as dependent
CDS (t-1)
0.135* 0.128* 0.249* 0.142*
EQ (t-1) -0.117* -0.292* -0.862* -1.308*
CDS (t-2) 0.266* 0.218* 0.156* 0.162*
EQ (t-2) -0.185* -0.305* -0.492* -0.929*
R2 16.96% 16.62% 20.92% 12.18%
It does not seem like there is any pattern when we consider the estimates for CDS spreads. In
quartile 1, 2, and 3 the estimates in the 2nd lag are higher than the estimates in the 1st lag. This
means that CDS spreads are more affected by CDS spread than CDS spread.
The R2 for the models is in the range from 12.18% to 20.92%, which is lower than our other
models with CDS as dependent. We can conclude that equity prices affect CDS spreads
negatively, and that the strength of this influence increases the higher the quartile.
9.5.1.2 Models with equity prices as dependent variable

We continue with examining the models with equity priceas dependent variable. From table 27
we see that none of the estimates in quartile 1 and quartile 2 are significant different from zero.
In quartile 3 the only significant value is the estimate for CDS spread in lag 1, and in quartile 4
66
the only significant values are the ones in 2nd lag. The overall F-test (appendix 10-13, table 3.4)
cannot be rejected for quartiles 1-3, but can be rejected for quartile 4.
Table 27: Before quartiles – VAR EQ

Before EQ as dependent
CDS (t-1)
-0.048 -0.041 -0.019* -0.009
EQ (t-1) -0.029 0.002 0.007 -0.015
CDS (t-2) 0.038 0.019 -0.001 -0.015*
EQ (t-2) -0.060 -0.048 -0.065 -0.070*
R2 0.62% 0.58% 0.73% 0.189%
Since quartile 4 is the only quartile with significant estimates and the only model where the F-
test is rejected, this is the only model we will comment on. We notice that the sign for the equity
price estimate in the 2nd lag is opposite of what we expect, whereas the CDS spread estimate in
the 2nd lag has the expected sign. Since R2 is very low (0.189%) we conclude that the VAR
model in quartile 4 does not explain the relationship between CDS spreads and equity prices.
The R2 for the other models is also low (in the range from 0.58% to 0.73%), which further
indicates that CDS spreads do not have an influence on the equity prices.
9.5.1.3 Summary
To conclude on the above robustness test of the period before the beginning of the crisis we can
conclude that equity prices lead CDS spreads. Based on low R2, insignificant estimates and the
Granger test we also conclude the influences CDS spreads have on equity prices are weak
compared to the other way around, so the two-way relationship we found earlier in this paper
will not be considered further.
9.5.2 After the beginning of the crisis 9th August 2007 – 1st May 2009
To examine the relationship between CDS spreads and equity prices in quartiles after the
beginning of the crisis, we firstly consider the stationarity of the original data. The stationarity is
rejected for all quartiles by the unit root test (appendix 14-17, table 1.1, 1.2, 2.1, 2.2) and
likewise is the existence of co-integration according to Johansen’s co-integration test (appendix
14-17, table 3.1) except for quartile 2. The time series data for the quartile 1, quartile 3, and
quartile 4 are stationary at 1st difference according to the unit root test (appendix 14-17, table 1.3,
1.4, 2.3, 2.4). For theses reasons quartile 1, quartile 3 and quartile 4 will be estimated by VAR
67
models and quartile 2 will be estimated by a VECM. The optimal number of lags is found
according to the Schwartz Information Criteria. Quartile 1 is a VAR(2) model while quartile 3
and quartile 4 are a VAR(1) model. Quartile 2 is a VECM(2) model.
Table 28 gives the results of the Granger Causality test. We cannot reject that equity prices
Granger cause CDS spreads in all quartiles. We can reject that CDS spreads Granger cause
equity prices in quartile 1 and quartile 2, but cannot reject that CDS spreads Granger cause
equity prices in quartile 3 and quartile 4. That is, there seems to be a two-way relationship
between CDS spreads and equity prices in quartile 3 and quartile 4.
Table 28: After quartiles – Granger Causality test

Before cause CDS spreads cause equity prices
Quartile 1 Yes* No
Quartile 2 Yes No
Quartile 3 Yes Yes*
Quartile 4 Yes Yes*
The test results for the Granger Causality test can only be trusted if the disturbance terms are not
serial correlated. In table 28 we see that we can trust that equity prices Granger cause CDS
spreads in quartile 1 and that CDS spreads Granger cause equity prices in quartile 3 and quartile
4. The serial correlation is not severe as the DW statistics are between 2.053 and 2.165 (appendix
14-17, table 3.5), but it is still present and should be taken into account when discussing the
To further examine the relationship we consider the estimated models

We start by consider the models with CDS spreads as dependent variable. From table 29 it can
be seen that all the estimates are significant and the F test for all the models are rejected
(appendix 14-17, table 3.4). All the estimates for equity are negative and all the estimates for the
CDS spreads are positive, which is according to our expectations.
number. The estimates for equity prices in quartile 3 and quartile 4 are much higher than the
estimates in quartile 1 and quartile 2 which indicates that the higher the CDS spreads the
stronger impact of equity prices on CDS spreads.
68
Table 29: After quartiles – VAR CDS
After CDS as dependent
CDS (t-1)
0.282* 0.367* 0.426* 0.400*
EQ (t-1) -0.495* -0.666* -2.908* -6.930*
CDS (t-2) 0.144* - - -
EQ (t-2) -0.305* - - -
R2 25.36% 23.61% 33.41% 31.81%
When considering the estimates for CDS spreads we see that the influence of the CDS spreads
estimates become higher the higher the quartile, but the increase is not as strong as for the
estimates for the equity prices. The equity price estimate in quartile 4 is 17 times higher than the
equity price estimate in quartile 1, whereas the estimate for CDS spreads in quartile 4 is only
1.75 times higher than the estimate in quartile 1 emphasising the increasing influence of equity
prices.
The R2 for the models are in the range from 23.61% to 33.41, which is more in line with our
previous results.
9.5.2.2 Models with equity prices as dependent variable

Next we study the models with equity price as dependent variable. From table 30 we see that it is
only the estimates for the equity prices that are significant. We reject for quartile 1-3 that all the
estimates are equal to zero at the same time even though the result for quartile 2 is a borderline
result as the F test is 0.0421. We cannot reject the F test for quartile 4 but again the result is
borderline as the F test is 0.0516 (appendix 14-17, table 3.4).
Table 30: After quartiles – VAR EQ

After EQ as dependent
CDS (t-1)
0.024 0.014 0.008 0.002
EQ (t-1) -0.180* -0.135* -0.107* -0.105*
CDS (t-2) 0.0002
EQ (t-2) -0.128*
R2 4.77% 2.27% 1.7% 1.36%
69
Opposite what we have found earlier the value of the equity price estimates decreases the higher
the quartile, and the same is true for the R2. The R2 are though higher than in the previous period
as it is between 1.36-4.77, but still low. Again the results are quite weak and based on the above
analysis it does not seem like CDS spreads are influencing equity prices in any significant way.
All in all we must conclude that the influence of equity price on CDS spreads is more significant
than the other way around.
9.5.3 Summary
From the above analyses we can conclude that equity prices lead CDS spreads and that a two-
way relationship between equity prices and CDS spreads before the beginning of the crisis is to
weak to be considered. When comparing the strength of the estimates we see that the influence
of equity prices on CDS spreads is more pronounced after the beginning of the crisis than before.
That is, the influence from equity prices to CDS spreads is higher the higher the CDS spreads
and the more volatile market conditions.
9.6 Rating
Credit rating is a measure of the general creditworthiness of an obligator or the creditworthiness
of an obligator with respect to a specific debt security (Standard & Poor’s:2006:8). The final
rating of a firm or debt security is a combined picture of the perceived business and financial
risks. Business risk is risk that arises in the firm’s environment and includes among others
country risk, industry characteristics, firm position and technology. Said in other words –
business risk is the obligators competition ability. On the other hand financial risk is risk
associated with the firm’s financial data and includes among others accounting, corporate
governance, financial policies and capital structure (Standard & Poor’s:2006:20). The rating of
firms and debt securities not only illustrate a combined picture of the risks but also makes the
entities comparable. The rating of firms or debt securities is done by rating agencies that are
specialised in this. The 3 major rating agencies are Standard & Poor Corporation, Moody’s
Investor Service and Fitch Ratings. The 3 agencies use different scales as it can be seen from
table 31. It can be seen from the scales that the lower the rating the shorter the distance to
default.
To be able to split our index into investment grade and high yield we downloaded ratings by
S&P, Fitch and Moody’s for all 265 firms – so we had 3 ratings for each firm. We calculated an
average rating for each firm to get a more precise picture using a rating conversion. Based on an
70
average rating we divided our data into investment grade and high yield. As can be seen from
table 31 anything below BBB+/Baa1 is high yield.
Table 31: Rating scale and definitions

S&P Fitch Moody's
Investment grade
Highest and strongest rating, capability to meet financial
AAA AAA Aaa commitment is extremely strong
High creditworthiness and very strong capability to meet
AA+ AA+ Aa1 financial commitment
A+ A+ A1 Strong solvency
BBB+ BBB+ Baa1 Exhibits adequate protection parameters
High yield
Less vulnerable to non payment than other speculative
BB+ BB+ Baa1 issues
Vulnerable to non payment, but has capacity to meet
B B B financial commitment
Currently vulnerable to non payment, and dependent upon
favourable business, financial, and economic conditions to
CCC CCC Caa meet financial commitment
D D D Payment Default
Source: Samson et al:2006:11
To test hypothesis H4.b and to analyse the relationship between CDS spreads and equity prices
more thoroughly we will examine if there is a difference in the relationship when splitting the
data in investment grade and high yield with the corresponding equity prices and CDS spreads
compared with the overall index. We expect a stronger relationship between equity prices and
CDS spreads for the high yield data compared with the investment grade data.
We re-calculate the mean and standard deviation for the time series split in rating. As expected
we find that the mean of high yield CDS spreads is about 5 times higher than the mean of
investment grade CDS spreads. The same is valid for the standard deviation.
When studying the mean and standard deviation for equity prices the difference is not so distinct.
The mean for high yield equity prices is 1.5 times smaller than the mean for investment grade
equity prices. The difference is even smaller when considering the standard deviation where the
standard deviation for high yield equity prices is 1.2 times higher than the standard deviation for
investment grade equity prices.
As usual CDS spreads are more volatile than equity prices and the difference between CDS
spreads and equity is highest in the high yield segment. The standard deviation for high yield
CDS spreads is 35 times higher than the standard deviation for high yield equity prices. While
71
the standard deviation for investment grade CDS spreads are “only” 8 times higher than the
standard deviation for investment grade equity prices.
Table 32: Rating – descriptive statistics

CDS Equity
IG HY IG HY
Mean 58.219 286.740 44.375 29.981
St. dev. 55.556 292.381 7.002 8.416
The picture determined for CDS spread and equity prices is also confirmed when considering
figure 11 where the investment grade CDS spreads are lower than the high yield CDS spreads for
the whole period. The high yield CDS spreads increase steeply mid 2007 and is very affected by
the crisis. This also explains the big difference between the standard deviation for investment
grade CDS and high yield CDS. This result is not surprising since the underlying entity for the
high yield CDS spreads is rated much lower than the investment grade and therefore the distance
to default is smaller.
Table 11: Development in high yield and investment grade CDS spreads and equity prices
1600 70
1400 60
1200 50
1000 40
USD
UDS
800 30
600 20
400 10
200 0
0
EQIG EQHY
CDSIG CDSHY
The estimated correlations (table 33) confirm our expectations that the relationship between high
yield CDS spreads and corresponding equity prices is stronger than the correlation between
investment grade CDS spreads and the corresponding equity prices. The correlation is -66.4% for
high yield and 53.4% for investment grade.
72
Table 33: Rating -
correlation
Correlation
Investment -0.534
grade
High yield -0.664
So far our hypothesis H4.b has only been confirmed and to further examine this we will study
the estimated models.
Both the models for high yield and investment grade are rejected to be stationary at the original
data by the unit root test (appendix 18-19, table 1.1, 1.2, 3.1, and 3.2) and likewise the existence
of co-integration is rejected according to Johansen’s co-integration test (appendix 18-19, table
5.1). Since both high yield and investment grade are stationary at 1st difference according to unit
root test (appendix 18-19, table 1.3, 1.4, 3.3, and 3.4) VAR modelling is used to analyse the
relationship between the CDS spreads and equity prices. The optimal number of lags is found to
be 1 for high yield and 2 for investment grade according to the Schwartz Information Criteria.
Table 34: Rating – Granger Causality test

Investment Yes* No*
grade
High yield Yes No*
The Granger Causality test indicates that it cannot be rejected that equity prices Granger cause
CDS spreads, but it can be rejected that CDS spreads Granger cause equity prices for both high
yield and investment grade. This result indicates that market participants reveal their pricing in
the equity market before they do the same in the CDS market. This result is consistent with the
previous results for index, that equity prices lead CDS spreads. The Granger Causality test would
not reject that investment grade CDS spreads Granger cause investment grade equity prices if it
is tested on a 10% significant level. This means, that there could be a weak two-way interaction
between the two markets on investment grade level.
To further examine the relationship we consider the estimates in the VAR models.
9.6.1 Models with CDS spreads as dependent variable

We start by studying the models with CDS spreads as dependent variable. From table 35 it can
be seen that all the estimates are significant (except CDS in the 2nd lag in investment grade) and
73
the F test for all the models are rejected (appendix 18-19, table 5.4). All the estimates for equity
prices are negative and all the estimates for the CDS spread in the 1st lag are positive, which is
according to our expectations. The estimate for CDS spread in the 2nd lag in investment grade is
negative, but is not significant, so we will not focus more on this estimate.
Table 35: Rating – VAR CDS

CDS as dependent
HY IG
CDS (t-1) 0.416* 0.401*
EQ (t-1) -6.380* -1.263*

CDS (t-2) -0.047
EQ (t-2) -0.497
2
R 27.35% 31.63%
As expected we find that the influence from equity prices on CDS spreads is stronger for the
high yield model than the investment grade model. The influence from the estimated 1st lag
equity prices is 5 times stronger for high yield than investment grade. The R2 for investment
grade is 16% higher than the R2 but the investment grade model does also have a higher number
of lags.
We conclude that the relationship between equity prices and CDS spreads is stronger for high
yield than investment grade.
9.6.2 Models with equity prices as dependent variable

We now consider the models with equity prices as dependent variable. From table 36 it can be
seen that none of the estimates are significant in the high yield index. Furthermore the F-test is
not rejected, so the high yield VAR model is not overall significant, which means, that we will
not analyse this model further.
In the investment grade index all the equity price estimates and 1st lag CDS spreads are
significant. The F-test for the investment grade VAR model is rejected (appendix 18-19, table
5.4) and the R2 is 2.63%. The significant estimates in the models are opposite signed compared
to what we expected which means that the CDS spreads is positive. This is interpreted in the way
that when the CDS spreads increase it will influence equity prices positively.
74
Table 39: Rating – VAR EQ
Equity as dependent
HY IG
CDS (t-1) 0.001 0.020*
EQ (t-1) 0.007 -0.112*

CDS (t-2) -0.011
EQ (t-2) -0.079*
2
R 0.02% 2.63%
The Granger Causality test for investment grade indicated that on a 10% significance level there
might be a two-way relationship between investment grade CDS spreads and equity prices. But
in the estimated model the influence from the significant CDS spread estimate is low and the R2
is also low. Based on this the indications that investment grade CDS spreads influence equity
prices seems questionable. All in all there might exist a weak two-way relationship but the
influence is so low that we will not consider it further. The Granger Causality test for high yield
rejected that CDS spreads Granger cause equity prices and this is further emphasised by the
estimated model.
9.6.3 Summary
From the above analysis we can conclude that the relationship between CDS spreads and equity
prices is stronger for high yield than investment grade. The Granger Causality test and the
estimated models all indicate this.
All in all our results are consistent with what we expected to find and we can accept our
hypothesis H4.b that the relationship between CDS spreads and equity prices is more
pronounced the lower the credit quality.
9.7 Rating split on quartiles

We split the rating indices for high yield and investment grade in quartiles. This is done to test
the robustness of the results found in section 9.6 and to further examine the weak indication of a
two way relationship for investment grade.
75
The indices for investment grade and high yield are split respectively into quartiles where
quartile 1 contains the 25% of firms with the lowest spread, quartile 2 contains the 2nd lowest
25% ect.
We calculate the mean and the standard deviation for each quartile in both the investment grade
and high yield index (table 37 and 38).
Table 37: Rating quartile – descriptive statistics CDS

CDS
Investment Grade High yield
Quartile 1 Quartile 2 Quartile 3 Quartile 4 Quartile 1 Quartile 2 Quartile 3 Quartile 4
Mean 28.59 44.52 65.37 109.75 120.69 197.59 346.27 560.43
St. dev. 22.42 30.67 58.41 106.47 86.70 201.71 248.54 587.21
To start with we consider the CDS spreads and as expected the mean increases the higher the
quartile for both investment grade and high yield. The mean for investment grade is 4 times
higher in quartile 4 than quartile 1 while the mean for high yield is 5 times higher in quartile 4
than 1. The mean for high yield is higher than the mean for investment grade in all quartiles. If
we compare high yield quartile 1 with investment grade quartile 1 and so forth we find that the
high yield mean is 4-5 times higher than investment grade for each quartile.
The standard deviation increases as expected the higher the quartile for both investment grade
and high yield. The standard deviation for investment grade is 5 times higher in quartile 4 than 1
while the standard deviation for high yield is 7 times higher in quartile 4 than 1.
The standard deviation for high yield is also higher than the standard deviation for investment
grade for all quartiles. However, it should be noticed that the standard deviation for investment
grade in quartile 4 is higher than the standard deviation for high yield in quartile 1. All in all the
standard deviation for high yield is 4-6 times higher than the standard deviation for investment
grade.
76
Table 38: Rating quartile – descriptiv statistics EQ
Equity
Investment Grade High yield
Quartile 1 Quartile 2 Quartile 3 Quartile 4 Quartile 1 Quartile 2 Quartile 3 Quartile 4
Mean 49.32 43.89 44.87 37.07 26.80 41.24 24.10 24.93
St. dev. 7.05 6.70 7.76 7.99 5.96 11.17 6.45 9.46
The pattern for equity prices is not as obvious. The mean for investment grade is decreasing the
higher the quartile except for quartile 3 but the difference in the mean between the quartiles is
not as high as in CDS spreads and the highest mean is only 1.3 times higher than the lowest. The
same is the case for high yield where the mean for quartile 1, 3 and 4 is very much at the same
level. Quartile 2 is though higher and almost 2 times higher than the lowest mean in quartile 3.
The standard deviation for investment grade is between 6.70 and 7.99 where the two highest
observations are in quartile 3 and 4. The standard deviation for high yield is between 5.956 -
11.174 where the highest is in quartile 2 which is also the quartile with the highest mean.
We continue to examine the relationship by considering the Spearman rank correlation for high
yield and investment grade for quartiles. We find that the correlation is strongest for high yield in
quartile 3, whereas the correlation is strongest for investment grade in quartile 4. In high yield
there does not seems to be any pattern regarding the strength and number of quartile, whereas the
correlation is increasing the higher the quartile in investment grade. The correlation in
investment grade is lower than high yield for all quartiles except for quartile 4 and this may
indicate a weaker relationship between CDS spreads and equity prices for investment grade
compared with high yield.
Table 39: Rating quartile -

correlation
Correlation
High Investment
Yield grade
Quartile 1 -0.744 -0.344
Quartile 2 -0.628 -0.367
Quartile 3 -0.819 -0.484
Quartile 4 -0.781 -0.831
77
To further examine the relationship between CDS spreads and equity prices we estimate the
relevant models.
9.7.1 High yield

To examine the relationship between the CDS spreads and equity prices in our high yield index
split in quartiles we firstly consider stationarity of the original data which is rejected by the unit
root test (appendix 24-27, table 1.1, 1.2, 2.1 and 2.2) and likewise the existence of co-integration
is rejected according to Johansen’s co-integration test (appendix 24-27, table 3.1), though not for
quartile 3. The two time series are stationary at 1st difference according to unit root test
(appendix 27, table 1.3, 1.4, 2.3, and 2.4) for quartile 1, 2, and 4. For theses reasons we estimate
the relationship with VAR modelling for quartile 1, 2, and 4 and VECM modelling for quartile 3.
The optimal number of lags are found to be two for quartile 2 and quartile 3 and 1 for quartile 2
and quartile 4 according to Schwartz Information Criteria.
Table 40: High yield quartile – Granger Causality test

High yield Equity prices Granger CDS spreads Granger
Quartile 1 Yes* No*
Quartile 2 Yes No*
Quartile 3 Yes No*
Quartile 4 Yes No*
cause CDS spreads, but can reject that CDS spreads Granger cause equity prices. Equity prices
therefore lead CDS spreads but not the other way around. We can trust the results for quartile 1
since the residuals in the VAR and VECM models are not serial correlated (appendix 24-27,
table 3.5). The residuals for the VAR model in quartile 2, 3 and 4 are slightly serial correlated
when testing if equity prices lead CDS spreads, which means, that we cannot quite trust the
result. We will further study the estimated models for high yield.
9.7.1.1 Models with CDS spread as dependent variable

Firstly we examine the estimated model for high yield with CDS spreads as dependent variable.
All the estimates in the models for all quartiles are significant different from zero. The overall
significance of the models cannot be rejected and the R2 are between 14.93% and 22.01%. All
the estimates for CDS spreads are positive while all the estimates for equity prices are negative.
Consistent with our hypothesis we find that the 1st lag equity price estimates increase the higher
the quartile. The influence from equity prices on CDS spreads is almost 3 times higher in quartile
78
4 than quartile 1. Quartile 1 is the only model with a 2nd lag and the influence from equity
decreases as the 2nd lag is 1.7 times smaller than the 1st lag. This is in accordance with our
previous findings.
Table 41: High yield quartiles – VAR CDS

High Yield CDS as dependent
CDS (t-1) 0.271* 0.376* 0.236* 0.359*
EQ (t-1) -2.520* -2.598* -6.985* -7.446*

CDS (t-2) 0.134* - - -
EQ (t-2) -1.480* - - -
2
R 20.49% 22.01% 15.47% 14.93%
The results from the Granger Causality test are consistent with the estimated models. Based on
the significant estimates and relatively high R2 we can conclude that the negative influence of
equity prices on CDS spreads increases the higher the quartile.
9.7.1.2 Models with equity price as dependent variable

We continue by studying the models with equity price as dependent variable for high yield. From
table 42 we see that none of the estimates in quartile 2 and quartile 3 are significant different
from zero. In quartile 1 the only significant value is 2nd lag of equity prices, and in quartile 4 the
only significant value is 1st lag of equity price. The overall significance of the model is rejected
for all quartiles. The R2 is low for all quartiles and the significant estimates are low.
Table 42: High yield quartiles – VAR EQ

High Yield
EQ as dependent
CDS (t-1) 0.0003 0.003 0.001 -0.0001
EQ (t-1) -0.011 -0.022 0.014 0.057*

CDS (t-2) -0.003 - - -
EQ (t-2) -0.071* - - -
R2 0.59% 0.2% 0.31% 0.33%
79
The results from the Granger Causality test are consistent with the estimated models. All in all
we must conclude that high yield CDS spreads do not influence equity prices.
9.7.2 Investment grade

We continue by examining the estimated models for investment grade. To examine the
relationship between the investment grade CDS spreads and the corresponding equity prices we
start with examining the stationarity of the original data which is rejected by the unit root test for
all quartiles (appendix 20-23, table 1.1, 1.2, 2.1 and 2.2) and likewise the existence of co-
integration is rejected according to Johansen’s co-integration test for all quartiles (appendix 20-
23, table 3.1). The two time series are stationary at 1st difference according to unit root test
(appendix 43, table 1.3, 1.4, 2.3, and 2.4). So we estimate the relationship with VAR models for
each quartile. The optimal number of lags is found to be two for all quartiles according to
Schwartz Information Criteria.
Table 43: Investment grade quartiles – Granger Causality test

High yield Equity prices Granger CDS spreads Granger
Quartile 1 Yes No*
Quartile 2 Yes Yes*
Quartile 3 Yes* No*
Quartile 4 Yes* Yes*
According to the Granger Causality test (table 5.3) we cannot reject that equity prices Granger
cause CDS spreads. We cannot reject that CDS spreads Granger cause equity prices in quartile 2
and 4 while we reject that CDS spreads Granger cause equity prices for quartile 1 and 3. We can
trust all results except that equity prices Granger cause CDS spreads for quartile 1 and 2. The
residuals in the VAR model for quartile 1 and 2 for CDS are slightly serial correlated. We will
further consider the estimated models for investment grade.

When analysing the estimates of the VAR models with CDS spreads as the dependent variable
(table 44) the sign of the estimates are positive for CDS spreads (except in the 2nd lag in quartile
2) and negative for equity prices. This is consistent with theory. All the estimates are significant
different from zero (except in the 2nd lag in quartile 3).
80
Table 44: Investment grade quartiles – VAR CDS
Investment
grade CDS as dependent
CDS (t-1) 0.319* 0.212* 0.367* 0.341*
EQ (t-1) -0.341* -0.353* -1.195* -2.912*

CDS (t-2) 0.119* -0.124* 0.011 -0.092*
EQ (t-2) -0.220* -0.628* -0.576* -0.886*
2
R 24.48% 9.18% 29.20% 25.09%
We study the estimated model for investment grade with CDS spreads as the dependent variable.
All the estimates in the models are significant different from zero except 2nd lag CDS spreadsfor
quartile 3. The overall significance of the models cannot be rejected and the R2 are in the range
of 24.48-29.20% except for quartile 2 where the R2 is only 9.18%. All the estimates for equity
prices are negative and almost all the estimates for CDS spreads are positive. However, the 2nd of
CDS spreads for quartile 1 and 3 are negative.
Consistent with our hypothesis we find that the influence of the equity estimates increases the
higher the quartile. The influence from equity prices on CDS spreads is about 8.5 times higher in
quartile 4 than quartile 1. For all quartiles except quartile 2, the 1st lag influence is higher than
the 2nd lag influence.
The results from the Granger Causality test are consistent with the estimated models. Based on
the significant estimates and relatively high R2 we can conclude that the negative influence of
equity prices on CDS spreads increases the higher the quartile. However, the relationship is
weaker in quartile 2 where the R2 is only 9.18% and it is difficult to say what is causing this.
Quartile 2 is also the quartile with the lowest correlation for high yield.
9.7.2.2 Models with equity price as dependent variable

We continue by studying the models with equity price as dependent variable for investment
grade. From table 45 we see that none of the estimates for CDS spreads are significant in quartile
1 and quartile 3. The 2nd lag of CDS spreads are significant in quartile 2 and 1st and 2nd lag are
significant for quartile 4. The overall significance of the models cannot be rejected for all
quartiles. The R2 are low and the influence from the significant CDS estimates are low.
81
Table 45: Investment grade – VAR EQ
Investment
grade EQ as dependent
CDS (t-1) 0.034 -0.005 0.001 0.009*
EQ (t-1) -0.170* -0.149* -0.088* -0.052

CDS (t-2) 0.004 0.023* 0.006 -0.006*
EQ (t-2) -0.120* -0.097* -0.067* -0.039
2
R 4.33% 3.49% 1.23% 1.40%
The Granger Causality test suggested that CDS spreads Granger cause equity for quartile 2 and
4, which this is also the quartiles where we find significant estimates for CDS spreads. But based
on the above analysis we must conclude that the influence is so low that we can conclude that
CDS spreads do not influence equity prices.
9.7.2.3 Summary
From the above analysis we find quite convincing results that high yield equity prices influence
high yield CDS spreads and both the Granger Causality test and the estimated models indicate
this. The influence increases the higher the quartile and the 1st lag equity prices increase from -
2.520 to -7.446. For the model with equity as dependent variable the Granger causality and
estimated model both indicate that high yield CDS spreads do not influence the corresponding
equity prices.
The influence from equity prices on CDS spreads in the model for investment grade is not as
strong. The negative influence increases the higher the quartile. Further 1st lag equity prices
increase from -0.341 to -2.912 for the high yield segment. For the model with equity as
dependent variable the Granger Causality test indicates that there might be a two-way
relationship for quartile 2 and 4 while it rejects for the quartile 1 and 3 that CDS spreads Granger
cause equity prices. This is confirmed by the estimated models that only quartile 2 and 4 have
significant estimates for CDS spreads. But the estimates are small, the R2 of the models are only
3.49% and 1.40% respectively. Though the F-tests are rejected.
Based on this we can accept our hypothesis 4.b that the relationship between CDS spreads and
equity prices are stronger for high yield than investment grade.
82
9.8 Sectors
To test hypothesis H4 and analyse the relationship between CDS spreads and equity prices more
thoroughly we would like to see if there is a difference in the relationship when splitting our
index data on 9 MSCI sectors33.
We re-calculate the mean and standard deviation for the sectors.

Table 46: Sector – descriptive statistics CDS
CDS Industry
Materials Communication Consumer Consumer, Energy Finance Industrial Technology Utility
Cyclical Non-cyclical
Mean 78.38 117.88 176.19 61.61 91.99 136.03 65.62 134.11 97.17
St. 93.73 116.17 177.9 40.44 64.97 196.97 62.54 175.85 72.62
Dev.
At first we consider the mean and standard deviation for CDS spreads. The sectors with the
highest mean are consumer cyclical and finance with a mean of 176.19 and 136.03 respectively.
Finance and consumer cyclical are also the two sectors with the highest standard deviation of
196.97 and 176.19 respectively. It can be seen from table 46 that the 4 sectors with highest mean
is also the 4 industries with the highest standard deviation. The sectors consumer non-cyclical
and industrial have the lowest means of 61.61 and 65.62 respectively and more over the lowest
standard deviation of 40.44 and 62.54 respectively. Energy, materials and industrial vary in the
rankings for mean and standard deviation, but they stay in the ranking area 6th to 8th.
Table 47: Sector – ranking mean/st.d. CDS
CDS
Highest mean Highest st. dev.
1 Consumer Cyclical Finance
2 Finance Consumer Cyclical
3 Technology Technology
4 Communication Communication
5 Utility Materials
6 Energy Utility
7 Materials Energy
8 Industrial Industrial
Consumer, Non- Consumer, Non-
9 cyclical cyclical
33
Short description of the sectors are given in appendix 1
83
If we consider the mean and standard deviation for equity price the same pattern is not present.
The sectors with the highest mean is energy and industrial with a mean of 50.32 and 48.84
respectively while the sectors with the highest standard deviation are energy and finance with a
standard deviation of 15.8 and 11.8 respectively. The sectors with the lowest means are
communication and consumer cyclical with a mean of 27.62 and 34.78 respectively. The sectors
with the lowest standard deviation are consumer non-cyclical and communication with a
standard deviation of 4.26 and 5.32 respectively. There are not an obvious pattern between
standard deviation and mean but this is probably because the range for both estimates is quite
low.
Table 48: Sector - descriptive statistic EQ

Equity Industry
Materials Communication Consumer Consumer, Energy Finance Industrial Technology Utility
Cyclical Non-cyclical
Mean 48 27.62 34.78 39.01 50.32 45.27 48.84 36.81 37.05
St. Dev. 9.07 5.32 5.66 4.26 15.8 11.8 10.14 7.31 5.96
Table 49: Sector – ranking mean/st.d. EQ
Equity
Highest mean Highest st. dev.
1
Energy Energy
2
Industrial Finance
3
Materials Industrial
4
Finance Materials
Consumer, Non-
5
cyclical Technology
6
Utility Utility
7
Technology Consumer Cyclical
8
Consumer, Cyclical Communication
Consumer, Non-
9
Communication cyclical
We confirm once again that CDS spread is more volatile than equity prices as the standard
deviation of CDS spreads range from 40.44 to196.97 while the standard deviation of equity
prices range from 4.26 to15.8.
84
We want to determine if the amount of debt in a sector will have an impact on the relationship
between CDS spreads and equity prices. We hypothesize that the less debt a sector has the
weaker the relationship between equity prices and CDS spreads (hypothesis H5).
To get a comparable measure of debt we need to take the numbers and sizes of firms in the
different sectors into account. Instead of using the absolute debt for a firm we calculate the
financial leverage for each firm in each sector. Financial leverage, also called gearing, is the use
of debt to increase the expected return on equity and is measured by the ratio of debt to debt plus
equity (Brealey:2006:998). Because we include equity we take into account that a high amount
of debt is only dangerous if the firm does not have enough equity to cover the debt.
Financial leverage = Debt

Debt + Equity
As a proxy for debt we use net debt from the individual firms. Net debt is a measure for a firm’s
overall debt situation and is calculated by the following (Brealey:2006:446):
Net debt = Short-term debt + Long-term debt – cash & cash equivalents
As a proxy for equity we use market capitalization. Market capitalization is the total dollar
market value of all of the firm’s outstanding shares and is calculated by the following:
(Brealey:2006:449)
Market capitalization = # outstanding shares x current market price for 1 share
We use the net debt and market capitalization for each individual firm in the different sectors to
calculate the financial leverage for each firm in each sector. Because we are comparing sectors
we calculate a sector’s average for financial leverage. The average financial leverage for each
sector can be seen in table 50
85
Table 50: Sector – financial leverage
Total
Total net Financial Average Average
In mil. USD Market cap.
debt leverage mkt. Cap net debt
Utility 192,185.57
172,828.89 47% 106,76.98 9,601.6
Financial 726,564.83
3,456,409.10 41% 25,948.74 123,443.18
Communication 260,973.43
188,358.70 31% 37,281.92 26,908.39
Con cyc 833,160.43
388,647.37 25% 15,148.37 7,066.32
Energy 409,116.64
96,986.12 20% 24,065.68 5,705.07
Materials 239,411.44
87,301.92 17% 11,970.57 4,365.1
Industrial 667,397.02
575,837.84 16% 15,890.41 13,710.42
Con non-cyc 1,697,843.81
223,058.46 14% 28,777.01 3,780.65
Technology 643,185.24
16,347.58 3% 33,851.85 860.40
Source: Bloomberg
We find that the sectors with the highest financial leverage are utilities and financial with a
leverage of 47% and 41% respectively. Technology and consumer non-cyclical have the lowest
financial gearing with a leverage of 3% and 14% respectively.
We would expect to find the highest CDS spreads in the sectors with the highest leverage as the
risk of default increases for firms with very high financial leverage, which makes it more
expensive to be protected against default. If we compare the degree of financial leverage with the
CDS spread mean in each sector we find that for some sectors this is true (see table 51).
Financial is the sector with the 2nd highest mean and also the sector with the 2nd highest leverage.
But the sector utilities has the 5th highest mean and the highest leverage. And the sector
technology has the 3rd highest mean but the lowest leverage. All in all the pattern is not
convincing.
86
Table 51: Sector - comparison of correlation, leverage and
mean
Correlation Correlation Leverage Mean
rank rank rank
Technology -0.8686 1 9 3
Finance -0.8478 2 2 2
Utility -0.6311 3 1 5
Industry -0.4635 4 7 8
Communication -0.4622 5 3 4
Energy -0.4494 6 5 6
Consumer, -0.3890 7 4 1
cyclical
Material -0.3672 8 6 7
Consumer, non- -0.3437 9 8 9
cyclical
Based on the calculated financial leverage we will expect the relationship between CDS spreads
and equity prices to be strongest in utility, financial and communication while weakest in
technology, consumer non-cyclical, and industrial. Firstly we will consider the Spearman rank
correlations between CDS spreads and equity prices for each sector (see table 51).
The most correlated sector is technology, which is also the sector with the lowest leverage so this
is not quite what we expected to find. But the 2nd and 3rd most correlated industries are financial
and utility and these are the sectors we found to be most leveraged. But otherwise an obvious
pattern is not present.
Initial we have not found anything that really supports our hypothesis. To further examine this
we estimate the relevant models for the individual sectors.
Data for all 9 industries are rejected to be stationary at the original data by the unit root test
(appendix 28-36, table 1.1, 1.2, 3.1, and 3.2) and likewise the existence of co-integration is
rejected according to Johansen’s co-integration test (appendix 28-36, table 5.1) in 8 of the 9
sectors. Technology is the only sector that is co-integrated, so to analyse the relationship
between CDS spreads and equity prices in the technology sector VECM is used. The other 8
sectors are stationary at 1st difference according to unit root test (appendix 28-36, table 1.3, 1.4,
3.3, and 3.4), so here VAR modelling is used. The optimal number of lags found according to
Schwartz Information Criteria. Most sectors will be estimated by two lags except communication
(1 lag), energy (3) and utility (1).
87
In table 52 the Granger Causality test for the 9 sectors are stated. It cannot be rejected for any of
the 9 sectors that equity prices is Granger causing CDS spreads. We find that it can be rejected
that CDS spreads is Granger causing equity prices for all sectors except for materials. This
suggests that there might exist a two-way relationship between CDS spreads and equity prices
for materials. But there are some problems with serial correlation and the results that equity
prices are Granger causing CDS spreads for communication, consumer cyclical, consumer non-
cyclical, and utility cannot be trusted (appendix 28-36, table 5.5). The result that CDS spreads
are not Granger causing equity prices cannot be trusted for consumer cyclical as well.
Table 52: Sector – Granger causality test

Equity price CDS spreads Granger
interaction term cause equity price
Granger cause CDS interaction term
Up market spreads
Communication Yes No*
Consumer Yes No*
cyclical
Consumer non- Yes No
cyclical
Energy Yes* No*
Financial Yes* No*
Industrial Yes* No*
Materials Yes* Yes*
Technology Yes* 34
No*
Utility Yes No*
We will further examine the relationship by studying the estimated models. Firstly we consider
the models with CDS spreads as dependent variable.
9.8.1 Models with CDS spreads as dependent variable

The 9 models for each sector are all overall significant and also all of the estimates are
significant. The overall explanatory power is on average 18.22% and is ranging from 33.90% for
consumer cyclical to only 3.30% for communication.
The estimates for CDS spreads are all positive in all the models while the estimates for equity
prices are all negative in all the models. For the models that include more than 1 lag we find that
the influence of equity prices decreases the higher the lag.
34
The GG values in technology gives the same result as the Granger Causality test, since GG = 0.0019.
88
Table 53: Sector – VAR CDS
CDS as dependent
Financial Consum Commu- Technolo Materi- Utility Industri Consu- Energy
-er nication -gy al -al mer non-
cyclical cyclical
CDS (t-1) 0.262* 0.379* 0.132* 0.242* 0.339* 0.238* 0.319* 0.250* 0.212*
EQ (t-1) -4.542* -3.365* -2.038* -1.129* -0.856* -0.818* -0.713* -0.621* -0.598*
CDS (t-2) -0.08* 0.136* 0.106* 0.090* 0.147* 0.190*
EQ (t-2) -1.741* -1.276* -0.393* -0.466* -0.342* -0.410*
CDS (t-3) 0.083*
EQ (t-3) -0.296*
2
R 20.20% 33.90% 3.30% 8.14% 22.91% 7.94% 25.26% 17.38% 24.99%
Leverage 2 4 3 9 6 1 7 8 5
rank
Mean rank 2 1 4 3 7 5 8 9 6
We use the 1st lag estimate for equity prices as an indication of the strength of the negative
influence from equity prices on CDS spreads. From the table above the strongest influence is
found for financial, and second strongest for consumer cyclical and so forth. The next lowest row
in table 53 indicates the leverage rank. We see that it is only the technology, utility, and energy
sectors that have a different influence than expected. If instead we examine the mean rank, the
connection seems to be a bit stronger but still not convincing. Furthermore utility and technology
have low R2 compared to the other sectors.
All in all we must conclude that the pattern is not convincing for all sectors but for financial,
consumer cyclical and communication the data seems to show a pattern. It seems like these 3
sectors have some of the highest leverage, standard deviations and means. But regarding our
hypothesis we have not found a connection strong enough to accept it. We have found
indications that for some sectors high leverage is associated with a strong influence from equity
prices on CDS spreads.
89
9.8.2 Models with equity prices as dependent variable
The estimated models35 with equity prices as dependent variable are quite weak as we have also
found earlier. As mentioned the Granger Causality test indicated that CDS spreads do not
influence equity prices for all the sectors except materials. The models for communication,
consumer cyclical, and technology are not overall significant and none of the estimates in the
respective models are significant different from zero. These sectors do also have the 3 lowest R2,
being between 0.11% and 0.33%. Financial and materials are the only sectors that have
significant estimates for CDS spreads for 2nd and 1st lag respectively. Materials is also the only
sector where a two-way relationship is suggested by the Granger Causality test. But the R2 is
only 1.44% and the estimates quite low so if any influence it must be quite low.
Table 54: Sector – VAR EQ

Equity as dependent
Consum- Utility Commu- Consu- Financi Techno Industri Materials Energy
er non- nication mer -al -logy -als
cyclical cyclical
CDS (t-1) -0.010 -0.003 -0.001 -0.001 -0.0002 0.001 0.016 0.017* 0.008
EQ (t-1) -0.106* -0.091* -0.024 -0.007 -0.081* -0.050 -0.081* -0.072* -0.119*
CDS (t-2) -0.0003 0.001 0.004* -0.017 0.003 0.002
EQ (t-2) -0.122* -0.059 -0.038 -0.046 -0.047 -0.105*
CDS (t-3) 0.008
EQ (t-3) 0.0401
R 2
2.25% 0.80% 0.11% 0.33% 1.28% 0.27% 1.28% 1.44% 2.77%
9.8.3 Summary
All in all we must conclude that the estimated models are not convincing enough to accept
hypothesis H5. But we did find that the high leveraged sectors as financial, consumer cyclical
and communication also were the sectors where the estimates for equity prices influenced CDS
spread the most. This indicates that there might be a connection and that there is a stronger
relationship between CDS spreads and equity prices for high leveraged sectors.
35
We use the 1st lag estimate for CDS spreads as an indication of the strength of the negative influence from CDS
spreads on equity prices.
90
9.9 Results
In the analysis section 9.1 to 9.8 we examine how CDS spreads and equity prices are related. At
first we noticed the specific characteristics of CDS spreads. They are extreme volatile and for the
overall index the CDS spreads standard deviation was 16 times higher than for equity prices.
When comparing the data for CDS spreads and equity prices graphically (see graph 10 section
9.4) we noticed how intense the CDS spreads reacted to the crisis compared with the equity
prices. We splitted our data into before the beginning of the crisis and after the beginning of the
crisis to test if the relationship change in a more volatile period that mostly consisted of
deteriorating market conditions compared with a more stable market. To examine how the
creditworthiness of the underlying debt/bond influence the relationship we splitted our data into
high yield and investment grade. For the models mentioned so far we splitted them into quartiles
and reestimated them to see how the size of CDS spreads influenced the results but also to
examine if there were any hidden tendencies. At last we splitted our data into sectors and
compared the estimated models with the financial leverage in each sector.
Throughout our analysis we have estimated 29 VAR/VECM models. For each model we have
analysed the relationship between equity prices and CDS spreads by considering the Granger
causality test and the estimated models with respectively CDS spreads and equity prices as
dependent variable.
For all the models with CDS as dependent variable we found that equity prices are influencing
CDS spreads negatively. This relationship was confirmed by the Granger causality test and the
actual estimates in the models.
For the models with equity prices as dependent variable we found that CDS spreads are not
influencing equity prices. This was also confirmed by the Granger causality test and the actual
estimates in the models. But for the model for investment grade and the model for the period
before the beginning of the crisis there were weak signs of CDS spreads influencing equity
prices. We determined though that when taking the size of the estimates and the R2 into account
the influence was too small to be significant.
Furthermore the negative relationship was also confirmed by the estimated Spearman rank
correlations that ranged from -34.37% to -97.3%36. All in all our results are convincing and
36A correlation of 97.3% seems unrealisticly high when considering empirical data and could be due to that
the data was influence by other common factors. But since our correlation results do not stand alone, but are
held up against our estimated models we will not comment more on this.
91
consistent throughout our robustness tests. We included exogenous variables to test if the results
were due to a third common variable that was not included in the model. But the relationship
seemed stable.
The finding of the negative relationship between equity prices and CDS spreads correspond to
the findings of among others Bystrøm (2004), Hafer (2008), Lake & Apergis (2009) and Chang
et al. (2008). The findings that equity prices influence CDS spreads and that CDS spreads do not
influence is consistent with the findings of Norden & Weber (2004), Forte & Pena (2008) and
Fung (2008). Though Norden & Weber (2004) find that CDS spreads influence equity prices in 5
out of 58 firms and Fore & Pena (2008) find that CDS spreads influence equity prices in 5 out of
65 cases. Furthermore, Fung et al. (2008) find that there is a two-way relationship between
equity prices and CDS spreads in the high yield segment, whereas we find a very weak link
between equity prices and CDS spreads in the investment grade segment, that we though chose
to dismiss due to lack of significance of estimates and low R2. That is, our results are more or
less consistent with the findings of other researchers that have found that equity prices influence
CDS spreads and not the other way around37.
Table 55 gives an overview over our results.
Table 55: Overview of results

Data Result Data Result
Index Equity prices Splitted in quartiles The relationship is
influence CDS stronger the higher
spreads negatively the quartile
Exogenous variables The relationship was
intact
Split in before and The relationship was Splitted in quartiles The relationship is
after the beginning of stronger after the stronger the higher
the credit crisis beginning of the the quartiles and
crisis stronger in after the
beginning of the
crisis
Split in high yield The relationship is Splitted on quartiles The relationship is
and investment grade stronger for high still strongest for
(Rating) yield compared with high yield and the
investment grade strength increases the
higher the quartile
Split in sectors For some sectors the
higher the average
leverage the stronger
the relationship
37
If the reader has an interest in researchers that have found that CDS spreads influence equity prices, we refer to
literature review (section 5).
92
Besides that we consistently found that equity prices influence CDS spreads negatively we also
found that the higher the CDS spreads the stronger the relationship in most cases.
First we splitted our time series into before and after the beginning of the crisis and we found
that the relationship after the beginning of the crisis was stronger than before the crisis. As can
be seen from figure 10 the CDS spreads reacted strongly to the crisis and increased steeply.
Moreover the standard deviation and mean after the beginning of crisis was higher than before
(table 9).
That the relationship becomes stronger the lower the credit rating was confirmed when we
splitted our data into high yield and investment grade. We found that the relationship between
CDS spreads and equity prices was stronger for high yield than investment grade. These findings
are consistent with the findings of Fung (2008).
We tested this further by splitting our models for index, before and after the beginning of the
crisis and high yield and investment grade into quartiles. We found that when we compared the
quartiles the relationship for quartile 2 was stronger than quartile 1 and the relationship for
quartile 3 was stronger than quartile 2 and at last that the relationship for quartile 4 was stronger
than quartile 3. We found this consistently for all the models.
At last we divided our index into sectors and estimated the average financial leverage in each
sector to see if there is any relationship between the amount of debt in a sector and the strength
of the relationship. Based on our previous findings that the relationship becomes stronger the
higher the spread we expected the sector with high financial leverage also to have a stronger
relationship than sectors with low financial leverage. The results were not as clear cut. There
was, however, a relationship between the highest leveraged industries financial, communication
and consumer cyclical as these also had the strongest relationship. But it was difficult to make a
precise conclusion and this could have been due to a coincident. Moreover for example financial
has specific characteristics that we did not go into the depth with and this may also have been the
case for the other sectors.
Until this point we have only compared the splitted data with the other part of the splitedt data.
Now we will try to compare the models with each other. In table 56 we have made a comparison
of the results for the models38.
38 To see a table including the quartiles see appendix 43
93
Table 56: Comparison of models
Ranking
of R- Ranking of 1st lag
Rank 1st lag 2nd lag 3rd lag R-square square estimate
3.6 High yield -6.38 27.35 5 1
2.6 Financial -4.542 -1.741 20.2 10 2
2.5 Consumer, cyclical -3.36513 -1.27632 33.9 3 3
2.1 Index, After -2.12302 38.23 1 5
2.0 Index -2.25953 -0.83542 34.17 2 4
1.5 Investment grade -1.263 -0.497 31.63 4 7
1.1 Industrial -0.713 -0.466 25.26 6 11
1.0 Materials -0.856 -0.393 22.91 8 9
1.0 Communication -2.03795 3.3 14 6
1.0 Energy -0.598 -0.41 -0.296 24.99 7 13
0.9 Index, Before -0.544 -0.413 22.37 9 14
Consumer, non-
0.8 cyclical -0.62065 -0.34168 17.38 11 12
0.7 Technology -1.12926 8.14 12 8
0.6 Utility -0.818 7.94 13 10
The models are sorted after the value of the 1st lag of the estimate for equity prices. But we
cannot only consider the estimates for equity prices, we also have to compare this with the R2
that indicates the overall explanatory power of the models. The problem with only looking at the
estimates can be illustrated by observing the sector communication where the equity estimate is
relatively high but the R2 is only 3.3%.
As can be seen from the table the estimated model for the overall index is actually quite strong.
The estimate for equity prices is the 4th strongest and the R2 is the 2nd strongest. Since this model
includes all our data we will use this as a benchmark when evaluating the other models. This
means that when evaluating the strength we will compare the size of the first lag estimate for the
respective model with the size of the 1st lag estimate of the overall index model and compare the
R2 of the respective model with the R2 of the overall model. We find that the influence from
equity prices on CDS spreads is stronger than for the overall index model in39the models for
financial, high yield, consumer cyclical and index after model
39
It is difficult accurately to compare the models since the number of lags varies and both the estimates and R2
U VWXY ^Y_
should be considered. To get an indication we calculate the following: & _ Every number greater
U VWXZ[\]Y ^Z[\]Y
than 2 indicates that the model is stronger than the overall index model. It is not an exact measure.
94
As mentioned besides financial and consumer cyclical all the other estimated models for sectors
indicate a weaker relationship than the overall model. The sizes of the estimates are smaller for
all compared with the estimate for the overall index and also the R2 is smaller. The weakest
models are for technology and utility where the R2 and the estimates are particular low.
When comparing the models before and after the beginning of the credit crisis we find that the
model for “after” is stronger than the model for “before” and stronger than the overall index. The
estimate for after the crisis is 0.94 times lower than the estimate for the overall index but the R2
is 1.12 times higher than the overall index. Moreover, we found that the after period was co-
integrated which suggest that equity prices and CDS spreads are driven by the same common
factor in the long run suggesting a stronger relationship between them.
When comparing the models for rating we find that the model for high yield is stronger than the
model for investment grade but the model for high yield is also stronger than the model for the
overall index. The 1st lag estimate for high yield is -6.38, which is almost 3 times higher than the
corresponding estimate for the overall index model. The R2 is 1.2 times higher for the overall
index compared with the high yield. But when taking both the estimate and the R2 into
consideration we find that the model for high yield is stronger than the overall index. The
opposite is true for the model for investment grade.
The conclusions made throughout the analysis are still consistent when taking the comparison
with the overall index into account.
We will now consider the models we splitted into quartiles. When comparing the quartiles we
found that the higher the quartile the stronger the influence. We will now compare the models for
the quartiles with the overall models. This means that for the quartiles on index we will compare
them with the overall index model and for the quartiles on high yield we will compare them with
the overall model for high yield and so on.
For index and the indices before and after the beginning of the crisis we find that quartile 3 and 4
are stronger models than the overall model while quartile 1 and 2 are weaker models (see table
47 for example and appendix 44 for all the tables).
95
Table 57: Index before quartile ranking
Rank 1st lag 2nd lag R2
2.9 Index, Before - Q4 -1.308 -0.929 12.18
2.5 Index, Before - Q3 -0.862 -0.492 20.92
2.0 Index, Before -0.544 -0.413 22.37
1.3 Index, Before - Q2 -0.292 -0.305 16.62
1.0 Index, Before -Q1 -0.117 -0.185 16.96
The same picture is not valid for investment grade and high yield when we compare the quartiles
with the overall models. We find that the overall model for high yield is stronger than all the
quartiles while for investment grade only quartile 4 is stronger than the overall model for
investment grade.
We find that in for the models for quartile 3 and 4 the influence is stronger than the overall
model and for quartile 1 and 2 the influence is weaker. This again suggests that the level of the
CDS spread effects the strength of the influence. It is worth noticing that the R2 is lower for all
the quartiles model compared with the overall model. But the picture is not valid for the models
for high yield and investment grade. In these models only quartile 4 is stronger than the overall
model. It is worth noticing that the result that the overall model is so strong is mainly due to
much higher R2 for the overall models. When the data is splitted in quartiles it looses explanatory
power and all the R2 for quartiles are lower than for the overall models. This is consistent for all
the estimated quartiles models.
We are now at the point in the study where we will consider our stated hypotheses in section 6
again. In table 58 we have listed the hypotheses our decision and argument for the decision. As
can be seen we can accept all our hypotheses. H5 is accepted with certain conditions and the
acceptance of H6 is inconclusive.
96
Table 58: Hypothesis, decision and arguments
Hypothesis Decision Argument
H1: The correlation Accept - For all 29 models with CDS spread as
between CDS spreads dependent the estimates for equity prices
and equity prices is were negative signed.
negative. - The Spearman rank correlations were
negative for all models.
H2: Equity prices Accept - For all 29 models with CDS spread as
influence CDS spreads dependent variable the equity estimates
and CDS spreads do not were significant, the R2 relatively high and
influence equity prices. the F-tests were rejected.
- The Granger causality test indicated for all
models that equity prices influence CDS
spreads.
- 27 of the 29 models with equity price as
dependent variablehad insignificant CDS
estimates and low R2 and the Granger
causality test also indicated that CDS
spreads do not influence equity prices.
- 2 of the 29 had significant estimates for
CDS spreads but the influence and the R2
were too low to have a real impact.
H3: The relationship Accept - When including exogenous variables in the
between CDS spreads model we still found that equity prices
and equity prices is still influence CDS spreads and that CDS
strong when including spreads did not influence equity prices.
exogenous variables.
H4.a: The relationship Accept - The influence from equity prices on CDS
between CDS spreads spreads was stronger after the beginning of
and equity prices is the crisis than before the beginning of the
stronger under crisis.
deteriorating market
conditions.
H4.b: The strength of the Accept - The influence from equity prices on CDS
relationship between spreads was stronger for high yield model
CDS spreads and equity than the investment grade model and the
prices becomes more overall model.
pronounced the lower the
credit quality.
H4.c: The strength of the Accept, when - The influence of equity on CDS spreads
relationship becomes comparing was higher the higher the quartile. And
more pronounced the quartile with when comparing with the overall model
higher the CDS spreads quartile. quartile 3 and 4 were stronger than the
of the underlying index. overall model and quartile 1 and 2 weaker.
Except for rating where only quartile 4 was
stronger for investment grade while not of
the quartiles were stronger for high yield.
H5: The strength of the Inconclusive - We found that the relationship was
relationship between stronger for the sectors financial,
CDS spreads and equity communication and consumer cyclical.
prices becomes more This indicated a relationship but the results
pronounced the more were not unambiguous.
debt an sector has.
When testing the validity of our hypothesis we test at the same time if the underlying rationale
for the hypothesis is valid.
97
By accepting H1 we accept that when equity prices increase the distance to default decreases,
which makes the price of protection smaller, i.e. the CDS spread decreases. The acceptance of
H2 indicates that the higher amount of analysts watching the equity market compared to the CDS
market influence that the price discovery takes place in the equity prices before CDS spreads.
But whether or not this is due to a higher form of efficiency or insider trading is beyond the
scope of our paper. When accepting H3 we accept that the 3 exogenous variables in our model
do influence the relationship. Moreover by accepting H4 we accept that investors are more likely
to react when they are in situations where the probability of default increases. That is, in
deteriorating market conditions, investment in low credit quality, or when investing in CDS with
high spreads. Since we did not find an unambiguous answer to H5 we cannot accept the rationale
that investors who has invested in sectors with a high debt will be more responsive to changes in
equity prices and CDS spreads than investors who have invested in sectors with lesser debt.
9.10 Equity volatility

In section 9.1 to 9.8 we find convincing evidence that CDS spreads and equity prices are
negatively correlated and that equity prices influence CDS spreads and not the other way around.
We accepted our hypothesis 1 and 2 and due to this we will briefly examine how equity volatility
affects CDS spreads.
In section 4.5 we described the Merton model, where equity volatility is included as a variable
that affect the CDS spreads. Supposedly equity volatility should influence CDS spreads
positively. This seems logical since the volatility also is an indicator of how risky equity is. The
risk of equity portrait the risk of the specific firm and as the risk increases the distance to default
decreases. Therefore when the equity volatility increase the CDS spreads should increase as well.
Since we have found the suggested relationship between the equity prices and CDS spreads to
hold we will include equity volatility as a 3rd variable in our model. This time we will only
examine the model with CDS spread as dependent variable as we have now established that CDS
spreads do not influence equity prices. Moreover we are not interested in how equity volatility
affects equity prices.
To create the variable equity volatility we need to determine how to estimate equity volatility.
Volatility is the standard deviation and since standard deviation needs more than one observation
to be calculated we estimate equity volatility as the rolling standard deviation. As Bystrøm
(2004) we estimate the rolling standard deviation for different lengths and we consider 1 month,
2 months, 3 months, 6 months and 1 year.
98
To get a preliminary indication of the results we estimate the Spearman Rank correlation. As
expected all the correlations are positive. Bystrøm (2004) found the strongest correlation for 3
months (Bystrøm:2005:8) which is normally also the length used by traders, but we find it to be
highest for 1 year. This is quite surprising as it means that CDS spreads are more influenced by a
standard deviation that covers a whole year and the correlation is decreasing from 1 month to 6
months so we would expect 1 year to be the lowest. Besides the high estimate in 1 year we get
that 1 month and 2 months is also quite high. To further examine this we consider the estimated
models.
Table 59: Volatility -

correlation
Correlation
1 month 0.5493
2 months 0.5296
3 months 0.4733
6 months 0.3977
1 year 0.6010
None of the volatility estimates are stationary and based on previously findings we know that
either are equity prices or CDS spreads. But we cannot reject the existence of co-integration
according to Johansen’s Co-integration tests except for the model including 1 year volatility
(appendix 37-42, table 3.1). The following models are therefore estimated by VECM modelling
except for the model including 1 year volatility where we use a VAR model.
As earlier the Granger Causality test indicates that equity prices Granger cause CDS spreads and
not the other way around. But equity volatility is also Granger causing CDS spreads. The results
are the same for all the 5 models and both the Granger Causality test and the Granger Gonzales
test show the same relationship: equity prices Granger cause CDS spreads and equity volatility
Granger cause CDS spreads.
Table 60: Volatility – Granger Causality test

Investment Equity prices Granger Equity volatility Granger
cause CDS spreads cause CDS spreads (GG)
grade
(GG)
1 month Yes* Yes*
2 month Yes* Yes*
3 month Yes* Yes*
6 month Yes* Yes*
40 Yes* Yes*
1 year
40
This is the result from the Granger Causality test.
99
We consider the estimated VECM models and VAR model in table 61. All the estimates are
significant different from zero except 2nd lag of the CDS estimate. The overall F-test is rejected
for all the models. As expected the equity price estimate influence CDS spreads negatively and
the CDS spreads estimates are positive in all lags and for all models. The equity volatility is
positive for all the VECM models in the 1st lag. In the 2nd lag and for the 1 year model the
estimate is negative which is not in accordance with what we expected. The influence decreases
as the number of lags increases for all the estimates except for 2 months equity.
Table 61: Volatility – VAR/VECM CDS

1 month 2 month 3 month 6 month 1 year
CDS (t-1) 0.425*
EQ (t-1) -2.226*
Time (t-1) -13.843*
D_CDS (t-1) 0.417* 0.373* 0.359* 0.362*
D_EQ (t-1) -1.971* -1.904* -1.990* -1.781*
D_Time (t-1) 4.295* 15.329* 18.047* 57.519*
D_CDS (t-2) 0.048 0.032 0.037
D_EQ (t-2) -0.949* -0.859* -0.820*
D_Time (t-2) -17.594* -13.895* -50.233*
R2 33.53% 36.02% 35.70% 37.42% 33.70%
If we consider equity prices (as previously) we find that the influence of equity prices is higher
than the influence of CDS spreads. On an average the influence is about 5 times higher in the 1st
lag and 22 times higher in the 2nd lag. However, this is not surprising.
We find that equity volatility influences CDS spreads more than equity prices. The estimates for
equity volatility are higher than the estimates for equity prices in all the models. The influence of
equity volatility increases the higher the interval is for the rolling standard deviation except for 1
year. In 1 month the influence is 2 times stronger than the influence from equity prices in the 1st
lag while the influence is 32 times stronger for 6 months in the 1st lag. Moreover the estimates
for equity volatility do not decrease as much as the estimates for equity prices in the 2nd lag.
In section 9.1 we found that for the overall index model the R2 was 34.17%. When including
equity volatility into the model we get an R2 that range from 33.53% to 37.42% so it seems like
the model has gained explanatory power. The influence from equity volatility on CDS spreads is
highest when the rolling standard deviation covers 6 months, but a time period between 2 months
and 6 months seem to estimate good models.
It is interesting that the 2nd lag of equity volatility is negative especially because the sizes of the
estimates are quite big. If we consider the total influence from equity volatility some of the
100
positive strong influence in the 1st lag estimates is off set by the strong negatively influence from
the 2nd lag estimates. If we for example study the model for 6 months were the influence from
equity volatility is strongest the combined influence from equity volatility is about 7.3 (57.519-
50.233) this is, however, still stronger than the influence from equity prices (-1.781-
0.820=2.601)41.
All in all we find that equity volatility influences CDS spreads positively in 1st lag except for 1
year and negatively in the 2nd lag. Thereby the results are not as clear cut as we had hoped for,
but they still indicate that equity volatility might influence positively due to positive 1st lag and
the Spearman Rank correlations. But regardless of the signs of the estimates we conclude that
equity volatility does influence CDS spreads based on the estimated models and the Granger
Causality test.
However, our findings reveal that further research is needed to draw a definite conclusion, and
we must leave this for future research.
10 Discussion
10.1 implications
In this section we want to discus the implications of our results and elements to be taken into
consideration before using our findings.
In this section we assume that there is a negative relationship between CDS spreads and bond
prices based on findings from other researchers. It should be kept in mind that the relationship
between CDS spreads and bond prices are still being analysed. Researchers such as Norden &
Weber (2007) find that there is a negative relationship between CDS spreads and bond prices.
That is, when CDS spreads increases (decrease) bond prices decrease (increase). This is due to
the fact that investors want to be compensated for the higher (lower) risk by a higher (lower)
yield.
10.1.1 Economic models

We have found that there is an inverse relationship between CDS spreads and equity prices. That
is, we found that an increase (decrease) in equity prices causes a decrease (increase) in CDS
41
This is though not theoretically correct when we consider the model as a whole. The value to insert in the model
for 1st lag equity volatility would not be the same value to insert for 2nd lag equity volatility so the example is just a
simplification.
101
spreads. The inverse relationship can be used when making economic models, which take the
development in credit risk into consideration. Based on our research we know that equity prices
influence CDS spreads and therefore it can be included as a variable when estimating credit risk.
As an example could be the Merton model and testing for its validity on empirical data.
10.1.2 New debt issue

Additionally, we also found that equity prices lead CDS spreads. That is, news that influences
the credit risk of a firm is incorporated into the equity price before it is incorporated into the
CDS spreads. The knowledge of the existence of a lead-lag relationship can be used when
issuing new debt.
The higher the credit risk the more investors expect to be compensated, when investing in
corporate bonds, that is, the higher yield they expect to get. Therefore corporate bonds sell at
lower prices and higher yields than government bonds due to the presence of credit risk
(Brealey:2006:250). When a firm wants to issue new debt, it wants to do it as cheap as possible
and therefore they want to issue a bond with as low a yield as possible.
As mentioned in section 4.3 CDS spreads are conceived as credit risk. Due to this fact the
finance department of a firm can with advantage take the development of the equity prices into
account in the decision of when to issue the new debt.
When equity prices increase (decrease), CDS spreads/credit risk will decrease (increase). The
lower (higher) the credit risk, the lower (higher) yield the investors expect in compensation and
the higher (lower) the price of the bond. If the equity price of the company is increasing then the
issuer should wait until the lag effect has occurred, since the return that bondholders demand for
investing in this bond is depending on the credit risk.
On the other hand if the finance department observes a decrease in equity price they should issue
the new debt before the lag effect occurs, in order to get the cheapest funding as possible.
If a firm needs to issue new debt as fast as possible it can be difficult to wait until the lag effect
has occurred. Furthermore, if the equity price is extreme volatile, it is a gamble to decide when
the best time is to issue new debt. But the main point is, when an increase (decrease) in equity
prices causes a decrease (increase) in CDS spreads, it makes it less (more) expensive for a firm
to fund itself in the credit market.
102
ye on equity prices the development in credit risk can be monitored.
Moreover, by keeping an eye
As an example if a bank have Pepcico Inc. in its book, that is own a Pepsico Inc. bond, the
bank’s credit risk depends on the credit risk of Pepsico Inc. among others. The bank can
therefore by keeping an eye on the equity price get a feeling of the development of their credit
risk.
10.1.3 Investment strategy

We started our thesis with defining the
the three forms of efficient markets. We did that in order to
make the reader aware of the consequences by lack of efficiency. If there are differences in
efficiencies between two markets it is possible to exploit this flaw and hereby make money.
As mentioned
ed before, we found that equity prices lead CDS spreads. That is, we found that price
discovery regarding credit risk is being expressed in the equity prices before the CDS spreads. In
the investment world credit investors can exploit this flaw to make investment
investment decision. We
found that there only exists a one-way
one way relationship, which means equity investors cannot really
use this discovery in their investment decisions. An example could be credit investors that hold
protection on CDS for Pepsico Inc. and observe
observe that the equity price of Pepsico Inc. is
increasing. This means that they should sell protection on CDS (that is, go long in the credit),
and when the lag effect has occurred they should buy protection on CDS (that is, go short in the
credit) and through that makee risk free money.
•Credit
Credit investor needs protection
Day 1 Buys CDS at 500 bp
•Buys
•Equity
Equity price increases
. •Credit
Credit investor knows that the CDS spread will react to this increase with a 2 days lag.
•Credit
Credit investor sells his CDS at 500 bp
Day 2
•The
The CDS spread reacts to the increase in equity and decreases
.
• The credit investor buys the CDS again but now to the adjusted price at 300 bp. He earned
Day 3 200 bp in profit
On the other hand, if credit investors observe a decrease of equity prices they should buy
protection on CDS (that is, go short in the credit) and when the lag effect has occurred they
103
should sell the protection on CDS (that is, go long in the credit). Of course the profitability is
depending on the transaction cost.
•The
The equity price decreases
•The
The arbitrage strategist knows that when the equity price decreases the CDS spread
will increase with 2 days lag
Day 1 • He buys a CDS at 500 bp
• 2 days adjustment time - the CDS reacts to the decrease in equity price
.
• The CDS spread has adjusted to the decrease in equity and is increased to 700 bp
• The arbitrage strategist sells his CDS at 700 bp
Day 4 •He
He earned 200 bp in profit
The lead-lag
lag relationship between two markets can only be used to make money if not all
investors are aware of the flaw. As an example if Pepsico’s equity price increases, then credit
investors wantss to be the protection seller of CDS on Pepsico. If all investors want to sell CDS
for Pepsico at the same time, then the supply will exceed demand driving the price down. When
it then is time to buy the CDS for Pepsico the demand will exceed the supply driving the price
up. This will make the transaction cost for trying to exploit the lead-lag
lead lag relationship too high,
and arbitrage will not
ot be possible.
Furthermore, we have not analysed the precise lead-lag

lead lag relationship or the actual strength of the
relationship, which of course have an impact on the above suggestions for applying our findings.
Moreover, our R2 values are in the range from 3.3% to 38.23%, which means that there are other
factors than equity prices that influence the CDS spreads and the investor should also take the
influence of these into account.
10.2 Critic of results

The above use of our findings is depending on the correctness
correctness of our results. As mentioned in
section 5 there have been other studies on the relationship between CDS spreads and equity
prices and the findings are not unambiguous. Our findings are the opposite of Lake & Apergis
(2009) and Hartmann (2008) but we
we join among others Norden & Weber (2004), Forte & Pena
104
(2008) and Fung (2008) in their findings that equity prices lead CDS spreads. Our study has been
far more extensive than theirs, however, our findings can be discussed.
First of all, we only look at the US market, which does not mean that we would get the same
results if making a similar study on the European market. There could be some country specific
issues that could influence the relationship. The possibility of our findings for the US market to
be the same in the European market is present, since both markets are characterized as developed
markets, whereas there could be some issues if trying to apply our findings in developing
markets like Latin America or Asia.
Furthermore, we have analysed a section of S&P 500 (that is we took the S&P 500 from the
beginning of 2002 as the basis for our study sample. From that we narrowed our sample down to
only containing the companies with proper data and a corresponding CDS). That is, we have
analysed the most traded companies in the US market. An argument could be made that when
companies are traded a lot the efficiency must be high, since these companies are being analysed
all the time. This means, that the equity market should be efficient whereas it is more
questionable that the CDS’ for the same companies will be scrutinised at the same level. This
could have an influence on our results. By this we mean, that since companies outside S&P 500
may not get analysed as much so the lead-lag relationship between CDS spreads and equity
prices could be different.
We have only checked the relationship on indices in order to avoid firm specific issues. It could
be that firm specific issues could change the relationship.
Moreover, the specific time period we have chosen to analyse can have an impact on the lead-lag
relationship. The time period we are analysing 2nd January 2004 to 1st May 2009 is before the
CDS market became regulated. This means that applying our result to a later time period the
results may not be the same.
At last we have encountered the same problems as other analysts trying to fit empirical data to
statistical models. It is a generalization and there might be tendencies in our data that we did not
find throughout our testing. All in all we have made an effort to apply the right statistical
methods and include the right data to insure results of a high quality. Moreover we have
robustness tested our data and the results have been consistent throughout this so we conclude
that the results can be trusted for the US market for S&P 500 companies.
105
11 Concluding remarks
The main question this thesis seeks to answer is, what is the relationship between CDS spreads
and equity markets. We find this question interesting, since even though CDS and equity are two
different financial products, they are both influenced by credit risk.
A CDS is a bilateral contract between two parties that agree to isolate and transfer the credit risk
for a reference entity in case of a pre-defined credit event occurs. The higher the probability of
the credit event, the higher the credit risk and the higher the CDS spread. CDS spread represents
the credit risk of a particular firm, and this credit risk is also represented in equities.
Equity is the ownership claim on the earnings and assets of a firm, but it also bears the ultimate
form of credit risk because it represents the most subordinated claim in the capital structure of
the firm. When credit risk increases the value of the firm is also affected and this will influence
the equity prices in a negative way. So intuitively a negative relationship should exist between
the two markets. Furthermore, if a lead-lag relationship exists between the two markets, there is
possibility of arbitrage between the two markets.
Our data is expanding over the period 2nd January 2004 to 1st May 2009 consisting of 265 firms.
The firms in our sample are basically the firms in S&P 500 from beginning of 2002 that have a
corresponding CDS. From these data we made equally weighted indices to analyse our research
question. We used Spearman Rank correlation coefficient, Granger Causality test & Gonzalo-
Granger (GG) measure and VECM/VAR- models to analyse the relationship between CDS
spreads and equity prices.
The correlation between CDS spreads and equity prices is negative
Our analysis showed that there is an inverse relationship between equity prices and CDS spreads.
All 29 models with CDS spread as dependent variable the estimates for equity prices were
negative and the Spearman Rank correlation was negative.
Equity prices influence CDS spreads and CDS spreads do not influence equity prices
For all 29 models with CDS spreads as dependent variable the equity estimates were significant,
the R2s were relatively high and the F-tests were rejected. Furthermore in all models the Granger
Causality test and the GG measure indicated that equity prices influence CDS spreads. 27 of the
29 models with equity as dependent variable had significant CDS estimates and low R2s and the
106
Granger Causality test and GG measure also indicated that CDS spreads do not influence equity
prices. In 2 of the 29 models there were significant estimates for CDS spreads, but the influence
and the R2s were too low to have an impact.
The robustness tests of our results that equity prices influence CDS spreads and not the other
way around further confirmed the validity of our results. Neither the influence of exogenous
variables nor splitting our data in before & after the beginning of the crisis, in quartiles, on rating
and on sectors influence the findings that there is a negative relationship between CDS spreads
and equity prices and that equity prices influences CDS spreads and not the other way around.
However we find that equity prices have a stronger influence on CDS spreads after the beginning
of the crisis than before the beginning of the crisis. Moreover the influence from equity prices on
CDS spreads is more pronounced the lower the credit quality and the higher the CDS spread on
the underlying index. Furthermore we did not find an unambiguous answer to the question if the
strength of the relationship between CDS spread and equity prices becomes more pronounced the
more debt a sector has.
We found that equity prices influence CDS spreads and the relationship is negative which is in
accordance with the Merton model. Therefore we found it interesting to test if the suggested
relationship for equity volatility in the Merton model also was valid for our data. We expanded
our index model by including equity volatility. The Spearman Rank correlation was positive but
the results of the estimated models were ambiguous.
From our analysis we conclude that CDS spreads and equity prices are negative correlated and
that equity prices influences CDS spreads and not the other way around. These findings can be
used in economic models, when issuing new debt and making investment decisions.
12 Suggested further research

During our work with this thesis some interesting questions have come to mind, which we found
were beyond the scope of this paper to answer, but could be relevant to investigate further.
When looking at the same research questions that we are investigating it would be interesting to
examine if the relationship between CDS spreads and equity prices changes if the same study is
made in another market, such as the European market.
Moreover it could be interesting to repeat this study when the regulation of the CDS market is
put into force and see if the relationship between CDS spreads and equity prices will change
107
under the new regulation. Another aspect of the crisis is that due to the collapse of Bear Stearns,
Merrill Lynch and Lehman Brothers the top 5 institutions are now providing 88% of the total
notional amount bought and sold, and is therefore a reflection of the increasing concentration and
counterparty risk within the CDS market (Reuters3:2009). All in all to test if the “new market”
changes our findings.
Furthermore to further examine the lead-lag relationship event studies could be a way to
facilitate this. It could be interesting to examine individual firms and follow how and when
equity prices and CDS spreads react to announcements. When analysing this, it will be possible
to detect the efficiency in each market and the degree of insider trading. Furthermore it will then
be possible to check for the influence that e.g. unexpected cash dividends financed by debt have
on the relationship between CDS spreads and equity prices.
Moreover it could be interesting to analyse the correctness of the pricing of CDS’ before the
beginning of the crisis. As seen in figure 9 we see that the CDS spreads skyrocketed after the
beginning of the crisis, whereas the corresponding decrease in equity prices was moderate. This
raises the question if the CDS’ were correctly priced before the beginning of the crisis as the
relationship between equity prices and CDS spreads was stronger after the beginning of the
crises.
Since the Merton model is the theoretical link between CDS spreads and equity prices it could be
interesting to test the application of this model on real data.
All in all due to the young age and continued development of the CDS market there are still
many unexamined subjects.
108
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Table of contents - Appendices
Appendix 1 – NAMES IN INDEX & SECTOR DESCRIPTION .................................................................... 3
Appendix 2 - INDEX .............................................................................................................................................. 13
Appendix 3 – EXOGENE VARIABLES ............................................................................................................. 27
Appendix 4 – INDEX QUARTILE 1 .................................................................................................................. 48
Appendix 8 - INDEX 02.01.2004 – 08.08.2007 (BEFORE) ................................................................... 88
Appendix 9 - INDEX 09.08.2007 – 01.05.2009 (AFTER) .................................................................... 102
Appendix 10 – Before QUARTILE 1 ............................................................................................................. 116
Appendix 14 – After QUARTILE 1 ................................................................................................................ 156
Appendix 15 – After Quartile 2 ...................................................................................................................... 166
Appendix 18 – INVESTMENT GRADE ......................................................................................................... 196
Appendix 19 – HIGH YIELD ............................................................................................................................. 209
Appendix 20 – Investment grade QUARTILE 1 ...................................................................................... 222
Appendix 24 – High yield QUARTILE 1 ...................................................................................................... 262
Appendix 28 - COMMUNICATION ................................................................................................................ 302
Appendix 29 – CONSUMER, CYCLICAL....................................................................................................... 315
Appendix 30 – CONSUMER, NON-CYCLICAL ........................................................................................... 328
Appendix 31 - ENERGY ..................................................................................................................................... 341
1
Appendix 32 - FINANCE.................................................................................................................................... 354
Appendix 33 - INDUSTRIALS .......................................................................................................................... 367
Appendix 34 – MATERIALS ............................................................................................................................. 380
Appendix 35 - TECHNOLOGY ......................................................................................................................... 393
Appendix 36 - UTILITIES ................................................................................................................................. 406
Appendix 37 – 1 WEEK ..................................................................................................................................... 419
APPENDIX 38 - 1 MONTH ................................................................................................................................ 425
APPENDIX 39 - 2 MONTHS .............................................................................................................................. 435
APPENDIX 40 - 3 MONTHS .............................................................................................................................. 445
APPENDIX 41 - 6 MONTHS .............................................................................................................................. 455
APPENDIX 41 - 1 YEAR ..................................................................................................................................... 465
Appendix 43 – OVERVIEW OF RESULTS ................................................................................................... 474
Appendix 44 – QUARTILE RANKING .......................................................................................................... 475
2
Appendix 1 – NAMES IN INDEX & SECTOR DESCRIPTION
NAMES SECTOR RATING
3M CO Industrial Investment grade
Consumer, Non-
ABBOTT LABORATORIES cyclical Investment grade
ACE LTD Financial Investment grade
ADVANCED MICRO DEVICES Technology High yield
Consumer, Non-
AETNA INC cyclical Investment grade
AIR PRODUCTS & CHEMICALS INC Basic Materials Investment grade
Consumer, Non-
ALBERTSON'S LLC cyclical High yield
ALCAN INC Basic Materials Investment grade
ALCOA INC Basic Materials Investment grade
Consumer, Non-
ALLERGAN INC cyclical Investment grade
ALLSTATE CORP Financial Investment grade
ALLTEL CORP Communications Investment grade
AMBAC FINANCIAL GROUP INC Financial High yield
AMERICAN ELECTRIC POWER Utilities Investment grade
AMERICAN EXPRESS CO Financial Investment grade
AMERICAN INTERNATIONAL
GROUP Financial Investment grade
Consumer, Non-
AMERISOURCEBERGEN CORP cyclical Investment grade
Consumer, Non-
AMGEN INC cyclical Investment grade
AMR CORP Consumer, Cyclical High yield
ANADARKO PETROLEUM CORP Energy Investment grade
Consumer, Non-
ANHEUSER-BUSCH COS INC. cyclical Investment grade
AOL TIME WARNER Communications Investment grade
AON CORP Financial Investment grade
APACHE CORP Energy Investment grade
APPLIED MATERIALS INC Technology Investment grade
Consumer, Non-
ARCHER-DANIELS-MIDLAND CO cyclical Investment grade
ASHLAND INC Basic Materials High yield
AT&T INC Communications Investment grade
AUTOZONE INC Consumer, Cyclical Investment grade
Consumer, Non-
AVERY DENNISON CORP cyclical Investment grade
Consumer, Non-
AVON PRODUCTS INC cyclical Investment grade
BAKER HUGHES INC Energy Investment grade
BALL CORP Industrial High yield
BANK OF AMERICA CORP Financial Investment grade
BARRICK GOLD CORP Basic Materials Investment grade
3
Consumer, Non-
BAXTER INTERNATIONAL INC cyclical Investment grade
Consumer, Non-
BECTON DICKINSON AND CO cyclical Investment grade
BELLSOUTH CORP Communications Investment grade
BEST BUY CO INC Consumer, Cyclical Investment grade
BLACK & DECKER CORP Industrial Investment grade
BOEING CO Industrial Investment grade
Consumer, Non-
BOSTON SCIENTIFIC CORP cyclical High yield
Consumer, Non-
BRISTOL-MYERS SQUIBB CO cyclical Investment grade
BRUNSWICK CORP Consumer, Cyclical High yield
BURLINGTON NORTHERN SANTA
FE Industrial Investment grade
Consumer, Non-
CAMPBELL SOUP CO cyclical Investment grade
CAPITAL ONE FINANCIAL CORP Financial Investment grade
Consumer, Non-
CARDINAL HEALTH INC cyclical Investment grade
CARNIVAL CORP Consumer, Cyclical Investment grade
CATERPILLAR INC Industrial Investment grade
CENTEX CORP Consumer, Cyclical High yield
CENTURYTEL INC Communications High yield
CHESAPEAKE ENERGY CORP Energy High yield
CHEVRON CORP Energy Investment grade
CHUBB CORP Financial Investment grade
Consumer, Non-
CIGNA CORP cyclical Investment grade
CINERGY CORP Utilities Investment grade
CISCO SYSTEMS INC Communications Investment grade
CIT GROUP INC Financial High yield
CITIGROUP INC Financial Investment grade
CMS ENERGY CORP Utilities Investment grade
Consumer, Non-
COCA-COLA CO/THE cyclical Investment grade
Consumer, Non-
COCA-COLA ENTERPRISES cyclical Investment grade
Consumer, Non-
COLGATE-PALMOLIVE CO cyclical Investment grade
COMCAST CORP-CL A Communications Investment grade
COMPUTER SCIENCES CORP Technology Investment grade
Consumer, Non-
CONAGRA FOODS INC cyclical Investment grade
CONOCOPHILLIPS CO Energy Investment grade
CONSOLIDATED EDISON INC Utilities Investment grade
CONSTELLATION ENERGY GROUP Utilities Investment grade
Consumer, Non-
CONVERGYS CORP cyclical High yield
COOPER INDUSTRIES LTD-CL A Industrial Investment grade
COOPER TIRE & RUBBER Consumer, Cyclical High yield
CORNING INC Communications Investment grade
4
COSTCO WHOLESALE CORP Consumer, Cyclical Investment grade
CRANE CO Industrial Investment grade
CSX CORP Industrial Investment grade
CUMMINS INC Industrial Investment grade
CVS CAREMARK CORP Consumer, Cyclical Investment grade
DANAHER CORP Industrial Investment grade
DARDEN RESTAURANTS INC Consumer, Cyclical Investment grade
DEERE & CO Industrial Investment grade
DELL INC Technology Investment grade
Consumer, Non-
DELUXE CORP cyclical High yield
DEVON ENERGY CORPORATION Energy Investment grade
DOMINION RESOURCES INC/VA Utilities Investment grade
DOVER CORP Industrial Investment grade
DOW CHEMICAL Basic Materials Investment grade
DTE ENERGY COMPANY Utilities Investment grade
DU PONT (E.I.) DE NEMOURS Basic Materials Investment grade
DUKE ENERGY CORP Utilities Investment grade
DYNEGY INC-CL A Utilities Not rated
EASTMAN CHEMICAL COMPANY Basic Materials Investment grade
EASTMAN KODAK CO Industrial High yield
EATON CORP Industrial Investment grade
EL PASO CORP Energy High yield
ELECTRONIC DATA SYSTEMS CORP Technology Investment grade
Consumer, Non-
ELI LILLY & CO cyclical Investment grade
EMC CORP/MASS Technology Investment grade
EMERSON ELECTRIC CO Industrial Investment grade
Consumer, Non-
EQUIFAX INC cyclical Investment grade
EXELON CORP Utilities Investment grade
FEDEX CORP Industrial Investment grade
FIRST DATA CORP Technology High yield
FIRSTENERGY CORP Utilities Investment grade
FLUOR CORP Industrial Investment grade
FORD MOTOR CO Consumer, Cyclical High yield
Consumer, Non-
FORTUNE BRANDS INC cyclical Investment grade
FREEPORT-MCMORAN COPPER Basic Materials High yield
GAP INC/THE Consumer, Cyclical High yield
GENERAL DYNAMICS CORP Industrial Investment grade
GENERAL ELECTRIC CO Industrial Investment grade
Consumer, Non-
GENERAL MILLS INC cyclical Investment grade
Consumer, Non-
GENZYME CORP cyclical Investment grade
GEORGIA-PACIFIC LLC Basic Materials High yield
GOODRICH CORP Industrial Investment grade
GOODYEAR TIRE & RUBBER CO Consumer, Cyclical High yield
Consumer, Non-
H&R BLOCK INC cyclical Investment grade
5
HALLIBURTON CO Energy Investment grade
HARRAH'S ENTERTAINMENT INC Consumer, Cyclical High yield
HARTFORD FINANCIAL SVCS GRP Financial Investment grade
HASBRO INC Consumer, Cyclical Investment grade
Consumer, Non-
HCA INC cyclical High yield
Consumer, Non-
HEALTH MGMT ASSOCIATES INC-A cyclical High yield
Consumer, Non-
HERSHEY CO/THE cyclical Investment grade
HESS CORP Energy Investment grade
HEWLETT-PACKARD CO Technology Investment grade
HILTON HOTELS CORP Consumer, Cyclical Not rated
Consumer, Non-
HJ HEINZ CO cyclical Investment grade
HOME DEPOT INC Consumer, Cyclical Investment grade
Consumer, Non-
HUMANA INC cyclical Investment grade
INTEL CORP Technology Investment grade
INTERNATIONAL PAPER CO Basic Materials Investment grade
INTERPUBLIC GROUP OF COS INC Communications High yield
INTL BUSINESS MACHINES CORP Technology Investment grade
INTL GAME TECHNOLOGY Consumer, Cyclical Investment grade
INTUIT INC Technology Investment grade
ITT CORP Industrial Investment grade
J.C. PENNEY CO INC Consumer, Cyclical High yield
JABIL CIRCUIT INC Industrial High yield
Consumer, Non-
JOHNSON & JOHNSON cyclical Investment grade
JOHNSON CONTROLS INC Consumer, Cyclical Investment grade
JONES APPAREL GROUP INC Consumer, Cyclical High yield
JPMORGAN CHASE & CO Financial Investment grade
KB HOME Consumer, Cyclical High yield
Consumer, Non-
KELLOGG CO cyclical Investment grade
KERR-MCGEE CORP Energy Investment grade
Consumer, Non-
KIMBERLY-CLARK CORP cyclical Investment grade
KOHLS CORP Consumer, Cyclical Investment grade
Consumer, Non-
KROGER CO cyclical Investment grade
LEGGETT & PLATT INC Industrial Investment grade
LEXMARK INTERNATIONAL INC-A Technology Investment grade
LIMITED BRANDS INC Consumer, Cyclical High yield
LINCOLN NATIONAL CORP Financial Investment grade
LIZ CLAIBORNE INC Consumer, Cyclical High yield
LOCKHEED MARTIN CORP Industrial Investment grade
LOEWS CORP Financial Investment grade
LOUISIANA-PACIFIC CORP Industrial High yield
LOWE'S COS INC Consumer, Cyclical Investment grade
MACY'S INC Consumer, Cyclical High yield
6
MARATHON OIL CORP Energy Investment grade
MARRIOTT INTERNATIONAL-CL A Consumer, Cyclical Investment grade
MARSH & MCLENNAN COS Financial Investment grade
MASCO CORP Industrial High yield
MATTEL INC Consumer, Cyclical Investment grade
MBIA INC Financial High yield
MCDONALD'S CORP Consumer, Cyclical Investment grade
Consumer, Non-
MCKESSON CORP cyclical Investment grade
MEADWESTVACO CORP Basic Materials Investment grade
Consumer, Non-
MEDTRONIC INC cyclical Investment grade
Consumer, Non-
MERCK & CO. INC. cyclical Investment grade
MERRILL LYNCH & CO INC Financial Investment grade
METLIFE INC Financial Investment grade
MGIC INVESTMENT CORP Financial High yield
MIRANT CORP Utilities High yield
MORGAN STANLEY Financial Investment grade
MOTOROLA INC Communications Investment grade
NATIONAL CITY CORP Financial Investment grade
NAVISTAR INTERNATIONAL Consumer, Cyclical High yield
NEW YORK TIMES CO -CL A Communications High yield
NEWELL RUBBERMAID INC Consumer, Cyclical Investment grade
NEWMONT MINING CORP Basic Materials Investment grade
NIKE INC -CL B Consumer, Cyclical Investment grade
NISOURCE INC Utilities Investment grade
NOBLE ENERGY INC Energy Investment grade
NORDSTROM INC Consumer, Cyclical Investment grade
NORFOLK SOUTHERN CORP Industrial Investment grade
NORTHROP GRUMMAN CORP Industrial Investment grade
NUCOR CORP Basic Materials Investment grade
OCCIDENTAL PETROLEUM CORP Energy Investment grade
OFFICE DEPOT INC Consumer, Cyclical High yield
OMNICOM GROUP Communications Investment grade
PACTIV CORPORATION Industrial Investment grade
Consumer, Non-
PEPSI BOTTLING GROUP INC cyclical Investment grade
Consumer, Non-
PEPSICO INC cyclical Investment grade
Consumer, Non-
PFIZER INC cyclical Investment grade
Consumer, Non-
PHILIP MORRIS INTERNATIONAL cyclical Investment grade
PITNEY BOWES INC Technology Investment grade
PPG INDUSTRIES INC Basic Materials Investment grade
PRAXAIR INC Basic Materials Investment grade
Consumer, Non-
PROCTER & GAMBLE CO/THE cyclical Investment grade
PROGRESS ENERGY INC Utilities Investment grade
PULTE HOMES INC Consumer, Cyclical High yield
7
QWEST COMMUNICATIONS INTL Communications High yield
RADIOSHACK CORP Consumer, Cyclical High yield
RAYTHEON COMPANY Industrial Investment grade
ROCKWELL COLLINS INC. Industrial Investment grade
ROHM AND HAAS CO Basic Materials Investment grade
Consumer, Non-
RR DONNELLEY & SONS CO cyclical Investment grade
RYDER SYSTEM INC Industrial Investment grade
SABRE HOLDINGS CORP-CL A Consumer, Cyclical High yield
Consumer, Non-
SAFEWAY INC cyclical Investment grade
Consumer, Non-
SARA LEE CORP cyclical Investment grade
Consumer, Non-
SCHERING-PLOUGH CORP cyclical Investment grade
SEALED AIR CORP Industrial High yield
SEMPRA ENERGY Utilities Investment grade
SHERWIN-WILLIAMS CO/THE Basic Materials Investment grade
SLM CORP Financial Investment grade
SOUTHERN CO Utilities Investment grade
SOUTHWEST AIRLINES CO Consumer, Cyclical Investment grade
SPRINT NEXTEL CORP Communications High yield
STANLEY WORKS/THE Industrial Investment grade
STAPLES INC Consumer, Cyclical Investment grade
STARWOOD HOTELS & RESORTS Consumer, Cyclical High yield
SUN MICROSYSTEMS INC Technology High yield
SUNOCO INC Energy Investment grade
Consumer, Non-
SUPERVALU INC cyclical High yield
Consumer, Non-
SYSCO CORP cyclical Investment grade
TARGET CORP Consumer, Cyclical Investment grade
TECO ENERGY INC Utilities Investment grade
TEMPLE-INLAND INC Industrial High yield
Consumer, Non-
TENET HEALTHCARE CORP cyclical High yield
TEXTRON INC Industrial Investment grade
THOMAS & BETTS CORP Industrial Investment grade
TORCHMARK CORP Financial Investment grade
TOYS "R" US INC Consumer, Cyclical High yield
TRANSOCEAN LTD Energy Not rated
TRW AUTOMOTIVE HOLDINGS
CORP Consumer, Cyclical Not rated
Consumer, Non-
UNILEVER N V -NY SHARES cyclical Investment grade
UNION PACIFIC CORP Industrial Investment grade
UNISYS CORP Technology High yield
UNITED STATES STEEL CORP Basic Materials High yield
UNITED TECHNOLOGIES CORP Industrial Investment grade
Consumer, Non-
UNITEDHEALTH GROUP INC cyclical Investment grade
UNUM GROUP Financial Investment grade
8
Consumer, Non-
UST INC cyclical Investment grade
VERIZON COMMUNICATIONS INC Communications Investment grade
VF CORP Consumer, Cyclical Investment grade
VIACOM INC-CLASS B Communications Investment grade
WACHOVIA CORP Financial Investment grade
WAL-MART STORES INC Consumer, Cyclical Investment grade
WALT DISNEY CO/THE Communications Investment grade
WASTE MANAGEMENT INC Industrial Investment grade
Consumer, Non-
WATSON PHARMACEUTICALS INC cyclical High yield
Consumer, Non-
WELLPOINT INC cyclical Investment grade
WELLS FARGO & CO Financial Investment grade
WEYERHAEUSER CO Basic Materials Investment grade
WHIRLPOOL CORP Consumer, Cyclical Investment grade
WILLIAMS COS INC Energy Investment grade
WORTHINGTON INDUSTRIES Industrial Investment grade
Consumer, Non-
WYETH cyclical Investment grade
XCEL ENERGY INC Utilities Investment grade
XEROX CORP Technology Investment grade
XL CAPITAL LTD -CLASS A Financial Investment grade
YUM! BRANDS INC Consumer, Cyclical Investment grade
SECTOR DESCRIPTION
Consumer Cyclical
Advertising
Apparel Retail
Apparel, Accessories & Luxury Goods
Auto Parts & Equipment
Automobile Manufacturers
Automotive Retail
Broadcasting
Cable & Satellite
Casinos & Gaming
Computer & Electronics Retail
Consumer Electronics
Department Stores
Distributors
Education Services
Footwear
General Merchandise Stores
Home Furnishings
Home Improvement Retail
Homebuilding
Homefurnishing Retail
Hotels, Resorts & Cruise Lines
Household Appliances
9
Housewares & Specialties
Internet Retail
Leisure Products
Motorcycle Manufacturers
Movies & Entertainment
Photographic Products
Publishing & Printing
Restaurants
Specialized Consumer Services
Specialty Stores
Tires & Rubber
Consumer Non-Cyclical
Agricultural Products
Brewers
Distillers & Vintners
Drug Retail
Food Distributors
Food Retail
Household Products
HyperMarkets & Super Centers
Packaged Foods & Meats
Personal Products
Soft Drinks
Tobacco
Energy
Coal & Consumable Fuels
Integrated Oil & Gas
Oil & Gas Drilling
Oil & Gas Equipment & Services
Oil & Gas Exploration & Production
Oil & Gas Refining & Marketing
Oil & Gas Storage & Transportation
Financials
Asset Management & Custody Banks
Consumer Finance
Diversified REITs
Diversified Banks
Industrial REITs
Insurance Brokers
Investment Banking & Brokerage
Life & Health Insurance
Multi-line Insurance
Multi-Sector Holdings
Office REITs
Other Diversified Financial Services
Property & Casualty Insurance
Real Estate Services
Regional Banks
Residential REITs
10
Retail REITs
Specialized Finance
Specialized REITs
Thrifts & Mortgage Finance
Health Care
Biotechnology
Health Care Distributors
Health Care Equipment
Health Care Facilities
Health Care Services
Health Care Supplies
Health Care Technology
Life Sciences Tools & Services
Managed Health Care
Pharmaceuticals
Industrials
Aerospace & Defense
Air Freight & Logistics
Airlines
Building Products
Commercial Printing
Construction & Engineering
Construction & Farm Machinery & Heavy Trucks
Diversified Support Services
Electrical Components & Equipment
Environmental & Facilities Services
Human Resource & Employment Services
Industrial Conglomerates
Industrial Machinery
Office Services & Supplies
Railroads
Research & Consulting Services
Trading Companies & Distributors
Trucking
Technology
Application Software
Communications Equipment
Computer Hardware
Computer Storage & Peripherals
Data Processing & Outsourced Services
Electronic Components
Electronic Equipment & Instruments
Electronic Manufacturing Services
Home Entertainment Software
Internet Software & Services
IT Consulting & Other Services
Office Electronics
Semiconductor Equipment
11
Semiconductors
Systems Software
Materials
Aluminum
Construction Materials
Diversified Chemicals
Diversified Metals & Mining
Fertilizers & Agricultural Chemicals
Forest Products
Gold
Industrial Gases
Metal & Glass Containers
Paper Packaging
Paper Products
Specialty Chemicals
Steel
Communication
Integrated Telecommunication Services
Wireless Telecommunication Services
Utilities
Electric Utilities
Gas Utilities
Independent Power Producers & Energy Traders
Multi-Utilities
12
Appendix 2 - INDEX
INDEX (CDS)
STATIONARITY
Table 1.1 – Original data

Graphical inspection of stationarity
Autocorrelations
Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1 Std Error
0 11312.695 1.00000 | |********************| 0
1 11291.190 0.99810 | .|********************| 0.027227
2 11263.927 0.99569 | . |********************| 0.047098
3 11232.201 0.99288 | . |********************| 0.060729
4 11197.517 0.98982 | . |********************| 0.071761
5 11161.541 0.98664 | . |********************| 0.081254
6 11123.203 0.98325 | . |********************| 0.089696
7 11082.896 0.97969 | . |********************| 0.097359
8 11041.691 0.97604 | . |********************| 0.104411
9 11000.505 0.97240 | . |******************* | 0.110969
10 10959.327 0.96876 | . |******************* | 0.117115
11 10917.523 0.96507 | . |******************* | 0.122912
12 10873.723 0.96120 | . |******************* | 0.128406
13 10828.449 0.95719 | . |******************* | 0.133634
14 10781.828 0.95307 | . |******************* | 0.138623
15 10733.913 0.94884 | . |******************* | 0.143398
16 10683.389 0.94437 | . |******************* | 0.147979
17 10630.790 0.93972 | . |******************* | 0.152381
18 10577.156 0.93498 | . |******************* | 0.156618
19 10522.507 0.93015 | . |******************* | 0.160702
20 10467.283 0.92527 | . |******************* | 0.164645
21 10412.153 0.92040 | . |****************** | 0.168455
22 10358.705 0.91567 | . |****************** | 0.172143
13
Autocorrelations
23 10306.599 0.91106 | . |****************** | 0.175716
24 10255.183 0.90652 | . |****************** | 0.179184
Table 1.2 – Original Data

Results from Dickey Fuller test. If “Pr < Tau” < 0.05 H0: Non-stationary is rejected.
Augmented Dickey-Fuller Unit Root Tests
Type Lags Rho Pr < Rho Tau Pr < Tau F Pr > F
Zero Mean 0 1.7268 0.9800 2.17 0.9932
1 1.0988 0.9275 0.82 0.8884
2 1.1379 0.9327 0.86 0.8953
Single Mean 0 1.0650 0.9900 0.94 0.9961 2.69 0.3796
1 -0.1688 0.9485 -0.09 0.9488 0.78 0.8709
2 -0.1121 0.9517 -0.06 0.9518 0.82 0.8618
Trend 0 -1.1192 0.9868 -0.73 0.9699 2.66 0.6421
1 -3.2723 0.9251 -1.27 0.8931 1.60 0.8574
2 -3.1436 0.9309 -1.24 0.9002 1.57 0.8628
14
Table 1.3 – 1. Difference
Autocorrelations
0 10.632948 1.00000 | |********************| 0
1 5.051047 0.47504 | .|********** | 0.027237
2 2.253406 0.21193 | .|**** | 0.032812
3 1.483638 0.13953 | .|*** | 0.033812
4 1.085903 0.10213 | .|** | 0.034237
5 1.405905 0.13222 | .|*** | 0.034462
6 0.702715 0.06609 | .|* | 0.034837
7 0.266877 0.02510 | .|* | 0.034929
8 0.328332 0.03088 | .|* | 0.034943
9 0.925592 0.08705 | .|** | 0.034963
10 1.031483 0.09701 | .|** | 0.035123
11 0.552260 0.05194 | .|* | 0.035322
12 0.286075 0.02690 | .|* | 0.035378
13 -0.208355 -.01960 | .|. | 0.035393
14 -0.264833 -.02491 | .|. | 0.035401
15 0.668175 0.06284 | .|* | 0.035414
16 0.880643 0.08282 | .|** | 0.035497
17 1.012160 0.09519 | .|** | 0.035640
18 0.293166 0.02757 | .|* | 0.035828
19 -0.330771 -.03111 | *|. | 0.035844
20 -0.397939 -.03743 | *|. | 0.035864
21 -0.757544 -.07124 | *|. | 0.035893
22 -0.476802 -.04484 | *|. | 0.035998
23 -0.068611 -.00645 | .|. | 0.036039
24 0.400809 0.03770 | .|* | 0.036040

15
Zero Mean 0 -703.857 0.0001 -21.80 <.0001
1 -723.767 0.0001 -18.92 <.0001
2 -619.290 0.0001 -15.72 <.0001
Single Mean 0 -706.227 0.0001 -21.84 <.0001 238.52 0.0010
1 -728.241 0.0001 -18.97 <.0001 179.95 0.0010
2 -625.006 0.0001 -15.76 <.0001 124.25 0.0010
Trend 0 -708.725 0.0001 -21.88 <.0001 239.41 0.0010
1 -733.036 0.0001 -19.02 <.0001 180.83 0.0010
2 -631.283 0.0001 -15.81 <.0001 124.98 0.0010
16
AUTOCORRELATION
Graph 2.1– Original data

Durbin Watson test statistic. Close to zero corresponds to positive correlation, close to 4
corresponds to negative autocorrelation
Durbin-Watson 0.0009

Breusch-Godfrey test. If “Pr > LM” < 0.05 we reject H0: No autocorrelation
Godfrey's Serial Correlation

Test
Alternative LM Pr > LM
AR(1) 1347.4987 <.0001
AR(2) 1347.7435 <.0001
AR(3) 1347.7444 <.0001
AR(4) 1347.7469 <.0001
17
Graph 2.2 – 1. difference
Table 2.3 – 1. difference

Table 2.4– 1. difference


Test
AR(1) 304.6171 <.0001
AR(2) 304.8681 <.0001
AR(3) 308.5867 <.0001
AR(4) 309.0580 <.0001
18
INDEX (EQUITY)
STATIONARITY

Autocorrelations
0 0.999530 1.00000 | |********************| 0
1 0.993348 0.99382 | .|********************| 0.027227
2 0.988667 0.98913 | . |********************| 0.046964
3 0.985205 0.98567 | . |********************| 0.060466
4 0.981183 0.98164 | . |********************| 0.071390
5 0.977553 0.97801 | . |********************| 0.080778
6 0.974304 0.97476 | . |******************* | 0.089125
7 0.971509 0.97197 | . |******************* | 0.096705
8 0.968950 0.96941 | . |******************* | 0.103695
9 0.966057 0.96651 | . |******************* | 0.110208
10 0.963221 0.96367 | . |******************* | 0.116322
11 0.960318 0.96077 | . |******************* | 0.122097
12 0.957141 0.95759 | . |******************* | 0.127578
13 0.953725 0.95417 | . |******************* | 0.132799
14 0.950369 0.95082 | . |******************* | 0.137788
15 0.947251 0.94770 | . |******************* | 0.142568
16 0.944667 0.94511 | . |******************* | 0.147164
17 0.941419 0.94186 | . |******************* | 0.151597
18 0.937762 0.93820 | . |******************* | 0.155874
19 0.934771 0.93521 | . |******************* | 0.160006
20 0.931888 0.93233 | . |******************* | 0.164008
21 0.928717 0.92915 | . |******************* | 0.167890
22 0.926275 0.92671 | . |******************* | 0.171660
23 0.923543 0.92398 | . |****************** | 0.175329
24 0.920837 0.92127 | . |****************** | 0.178903
19
Zero Mean 0 -7.7794 0.0538 -2.16 0.0301
1 -6.0439 0.0907 -1.94 0.0506
2 -4.8352 0.1309 -1.79 0.0704
Single Mean 0 -7.7799 0.2291 -2.15 0.2230 2.36 0.4653
1 -6.0450 0.3439 -1.94 0.3152 1.92 0.5780
2 -4.8369 0.4513 -1.79 0.3866 1.66 0.6447
Trend 0 -9.3308 0.4835 -1.84 0.6843 2.42 0.6923
1 -6.0098 0.7437 -1.37 0.8693 1.87 0.8021
2 -3.6312 0.9072 -0.95 0.9482 1.70 0.8378
20
Autocorrelations
0 0.244547 1.00000 | |********************| 0
1 -0.024803 -.10142 | **|. | 0.027237
2 -0.017205 -.07035 | *|. | 0.027515
3 0.017225 0.07044 | .|* | 0.027649
4 -0.0023169 -.00947 | .|. | 0.027781
5 -0.0020052 -.00820 | .|. | 0.027784
6 -0.0030006 -.01227 | .|. | 0.027786
7 -0.0039573 -.01618 | .|. | 0.027790
8 0.015257 0.06239 | .|* | 0.027797
9 0.00046374 0.00190 | .|. | 0.027900
10 0.0041198 0.01685 | .|. | 0.027900
11 0.0083180 0.03401 | .|* | 0.027908
12 0.0027066 0.01107 | .|. | 0.027939
13 0.0072001 0.02944 | .|* | 0.027942
14 -0.0030945 -.01265 | .|. | 0.027965
15 -0.021559 -.08816 | **|. | 0.027969
16 0.017914 0.07326 | .|* | 0.028175
17 0.013730 0.05615 | .|* | 0.028316
18 -0.015347 -.06276 | *|. | 0.028398
19 0.0021885 0.00895 | .|. | 0.028501
20 0.0042333 0.01731 | .|. | 0.028503
21 -0.012173 -.04978 | *|. | 0.028511
22 0.0090403 0.03697 | .|* | 0.028575
23 0.00097680 0.00399 | .|. | 0.028610
24 -0.0043117 -.01763 | .|. | 0.028611
21
Zero Mean 0 -1483.51 0.0001 -40.62 <.0001
1 -1745.23 0.0001 -29.52 <.0001
2 -1460.82 0.0001 -21.72 <.0001
Single Mean 0 -1483.63 0.0001 -40.61 <.0001 824.46 0.0010
1 -1745.77 0.0001 -29.51 <.0001 435.50 0.0010
2 -1461.83 0.0001 -21.72 <.0001 235.87 0.0010
Trend 0 -1487.33 0.0001 -40.70 <.0001 828.31 0.0010
1 -1761.77 0.0001 -29.63 <.0001 439.07 0.0010
2 -1490.36 0.0001 -21.84 <.0001 238.54 0.0010
22
AUTOCORRELATION
Graph 4.1 – Original data



Test
AR(1) 1340.9748 <.0001
AR(2) 1341.0454 <.0001
AR(3) 1341.0868 <.0001
AR(4) 1341.1067 <.0001
23



Test
AR(1) 13.8680 0.0002
AR(2) 22.7271 <.0001
AR(3) 26.7906 <.0001
AR(4) 26.7950 <.0001
24
MODEL
CO-INTEGRATION

Johansen’s co-integration test. If Trace value > Critical value (5%) we reject H0: No co-
integration.
H0: Rank = r H1: Rank > r Eigenvalue Trace 5% Critical Value
0 0 0.0042 6.0197 15.34
1 1 0.0003 0.3718 3.84
VAR-MODEL
Table 5.2
Equation Parameter Estimate Std. Error t-value Pr > |t| Variable
CDS 1 diff Constant1 - 0.0952 0.07248 -1.31 0.1892 1
AR1_1_1 0.37478 0.02755 13.60 0.0001 CDS (t-1)
AR1_1_2 - 2.25953 0.14986 -15.08 0.0001 EQ (t-1)
AR2_1_1 0.04223 0.02570 1.64 0.1006 CDS (t-2)
AR2_1_2 - 0.83542 0.15966 -5.23 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.00542 0.01343 0.40 0.6863 1
AR1_2_1 0.00425 0.00510 0.83 0.4048 CDS (t-1)
AR1_2_2 - 0.10474 0.02776 -3.77 0.0002 EQ (t-1)
AR2_2_1 - 0.00385 0.00476 -0.81 0.4183 CDS (t-2)
AR2_2_2 - 0.07330 0.02958 -2.48 0.0133 EQ (t-2)
GRANGER CAUSALITY TEST
Table 5.3
Granger Causality Wald Test
Test DF Chi-Square Pr > ChiSq

1 2 235.37 < 0.0001
2 2 0.91 0.6347
Test 1: Group 1 Variable: CDS 1 diff

Group 2 Variable: EQ 1 diff
Test 2: Group 1 Variable: EQ 1 diff
Group 2 Variable: CDS 1 diff
25
UNIVARIATE MODEL ANOVA DIAGNOSTICS
Table 5.4
Variable R-Square Std. Deviation F Value Pr > F
CDS 1diff 0.3417 2.65234 174.00 < 0.0001
EQ 1diff 0.0175 0.49137 5.99 < 0.0001
UNIVARIATE MODEL WHITE NOISE DIAGNOSTICS
Table 5.5
Variable Durbin Normality Pr > Chi Sq F Value Pr > F
Watson Chi Square
CDS 1diff 2.01470 9999.99 < 0.0001 155.82 < 0.0001
EQ 1diff 1.99136 1447.86 < 0.0001 30.72 < 0.0001
26
Appendix 3 – EXOGENE VARIABLES
CBOE VOLATILITY INDEX (VIX)
STATIONARITY

Autocorrelations
0 147.650 1.00000 | |********************| 0
1 145.679 0.98665 | .|********************| 0.027227
2 144.245 0.97694 | . |********************| 0.046739
3 143.373 0.97103 | . |******************* | 0.059996
4 142.244 0.96338 | . |******************* | 0.070693
5 141.479 0.95820 | . |******************* | 0.079834
6 140.509 0.95164 | . |******************* | 0.087947
7 139.621 0.94562 | . |******************* | 0.095275
8 139.031 0.94163 | . |******************* | 0.101995
9 138.245 0.93630 | . |******************* | 0.108248
10 137.525 0.93142 | . |******************* | 0.114093
11 136.590 0.92509 | . |******************* | 0.119597
12 135.461 0.91745 | . |****************** | 0.124789
13 134.655 0.91199 | . |****************** | 0.129693
14 133.744 0.90581 | . |****************** | 0.134363
15 132.818 0.89955 | . |****************** | 0.138816
16 131.852 0.89300 | . |****************** | 0.143071
17 130.894 0.88652 | . |****************** | 0.147145
18 129.760 0.87883 | . |****************** | 0.151053
19 128.585 0.87088 | . |***************** | 0.154797
20 127.279 0.86203 | . |***************** | 0.158387
21 125.965 0.85313 | . |***************** | 0.161827
22 124.831 0.84545 | . |***************** | 0.165128
27
Autocorrelations
23 123.844 0.83877 | . |***************** | 0.168306
24 122.959 0.83277 | . |***************** | 0.171377

Zero Mean 0 -3.8518 0.1776 -1.26 0.1928
1 -2.6266 0.2659 -0.99 0.2876
2 -1.5666 0.3859 -0.70 0.4130
Single Mean 0 -16.3979 0.0281 -2.80 0.0589 3.95 0.0893
1 -12.1178 0.0808 -2.38 0.1480 2.87 0.3335
2 -8.3386 0.2006 -1.94 0.3130 1.95 0.5711
Trend 0 -29.9809 0.0080 -3.94 0.0109 7.83 0.0106
1 -22.8432 0.0383 -3.43 0.0481 5.95 0.0663
2 -16.3995 0.1415 -2.91 0.1601 4.33 0.3056
28
Autocorrelations
0 3.766279 1.00000 | |********************| 0
1 -0.552903 -.14680 | ***|. | 0.027237
2 -0.558776 -.14836 | ***|. | 0.027818
3 0.234799 0.06234 | .|* | 0.028398
4 -0.369187 -.09802 | **|. | 0.028500
5 0.222950 0.05920 | .|* | 0.028749
6 -0.084789 -.02251 | .|. | 0.028839
7 -0.308664 -.08195 | **|. | 0.028852
8 0.206039 0.05471 | .|* | 0.029024
9 -0.090688 -.02408 | .|. | 0.029101
10 0.273132 0.07252 | .|* | 0.029116
11 0.173172 0.04598 | .|* | 0.029249
12 -0.326779 -.08676 | **|. | 0.029303
13 0.086211 0.02289 | .|. | 0.029493
14 0.027498 0.00730 | .|. | 0.029506
15 0.014509 0.00385 | .|. | 0.029507
16 -0.027127 -.00720 | .|. | 0.029508
17 0.171170 0.04545 | .|* | 0.029509
18 0.056488 0.01500 | .|. | 0.029561
19 0.103978 0.02761 | .|* | 0.029566
20 0.0046781 0.00124 | .|. | 0.029586
21 -0.200699 -.05329 | *|. | 0.029586
22 -0.163292 -.04336 | *|. | 0.029657
23 -0.049875 -.01324 | .|. | 0.029704
24 -0.021121 -.00561 | .|. | 0.029708

29
Zero Mean 0 -1544.73 0.0001 -42.53 <.0001
1 -2192.48 0.0001 -33.09 <.0001
2 -2100.86 0.0001 -24.26 <.0001
Single Mean 0 -1544.80 0.0001 -42.52 <.0001 903.84 0.0010
1 -2192.94 0.0001 -33.08 <.0001 547.06 0.0010
2 -2102.14 0.0001 -24.26 <.0001 294.19 0.0010
Trend 0 -1544.94 0.0001 -42.50 <.0001 903.33 0.0010
1 -2193.71 0.0001 -33.07 <.0001 546.82 0.0010
2 -2103.93 0.0001 -24.25 <.0001 294.08 0.0010
AUTOCORRELATION


30
Test
AR(1) 1314.7966 <.0001
AR(2) 1315.4766 <.0001
AR(3) 1316.4369 <.0001
AR(4) 1316.4452 <.0001


31
Test
AR(1) 29.0595 <.0001
AR(2) 68.8431 <.0001
AR(3) 69.0227 <.0001
AR(4) 86.6205 <.0001
32
5-YEAR T-BILL RATE
STATIONARITY

Autocorrelations
0 0.855836 1.00000 | |********************| 0
1 0.852251 0.99581 | .|********************| 0.027227
2 0.848860 0.99185 | . |********************| 0.047026
3 0.845884 0.98837 | . |********************| 0.060580
4 0.842679 0.98463 | . |********************| 0.071542
5 0.839482 0.98089 | . |********************| 0.080967
6 0.836226 0.97709 | . |********************| 0.089343
7 0.832981 0.97330 | . |******************* | 0.096941
8 0.829569 0.96931 | . |******************* | 0.103933
9 0.826298 0.96549 | . |******************* | 0.110431
10 0.822943 0.96157 | . |******************* | 0.116520
11 0.819390 0.95741 | . |******************* | 0.122261
12 0.815820 0.95324 | . |******************* | 0.127698
13 0.811831 0.94858 | . |******************* | 0.132868
14 0.807696 0.94375 | . |******************* | 0.137797
15 0.803976 0.93940 | . |******************* | 0.142508
16 0.800211 0.93500 | . |******************* | 0.147027
17 0.796574 0.93076 | . |******************* | 0.151370
18 0.792680 0.92621 | . |******************* | 0.155555
19 0.788808 0.92168 | . |****************** | 0.159591
20 0.784707 0.91689 | . |****************** | 0.163489
21 0.780496 0.91197 | . |****************** | 0.167257
22 0.776428 0.90722 | . |****************** | 0.170903
23 0.772392 0.90250 | . |****************** | 0.174437
24 0.768272 0.89769 | . |****************** | 0.177865
33
Zero Mean 0 -0.4570 0.5795 -0.69 0.4187
1 -0.4415 0.5830 -0.69 0.4166
2 -0.3829 0.5960 -0.66 0.4303
Single Mean 0 -2.1911 0.7559 -0.79 0.8210 0.45 0.9646
1 -1.8828 0.7926 -0.71 0.8431 0.40 0.9755
2 -1.3196 0.8550 -0.54 0.8799 0.30 0.9900
Trend 0 -4.0811 0.8818 -1.38 0.8659 1.99 0.7788
1 -3.7214 0.9024 -1.31 0.8841 1.98 0.7810
2 -3.1578 0.9303 -1.23 0.9039 2.25 0.7262
34
Autocorrelations
0 0.0048568 1.00000 | |********************| 0
1 -0.0002039 -.04198 | *|. | 0.027237
2 -0.0004528 -.09323 | **|. | 0.027285
3 0.00010471 0.02156 | .|. | 0.027520
4 -0.0000989 -.02036 | .|. | 0.027533
5 0.00011284 0.02323 | .|. | 0.027544
6 -0.0000781 -.01607 | .|. | 0.027558
7 0.00017111 0.03523 | .|* | 0.027565
8 -0.0002120 -.04365 | *|. | 0.027599
9 5.45905E-7 0.00011 | .|. | 0.027650
10 0.00032602 0.06713 | .|* | 0.027650
11 -0.0001244 -.02562 | *|. | 0.027770
12 0.00033929 0.06986 | .|* | 0.027788
13 0.00016077 0.03310 | .|* | 0.027918
14 -0.0002173 -.04475 | *|. | 0.027947
15 -1.646E-6 -.00034 | .|. | 0.028000
16 -0.0000739 -.01522 | .|. | 0.028000
17 0.00028972 0.05965 | .|* | 0.028006
18 -3.1303E-6 -.00064 | .|. | 0.028100
19 0.00004855 0.01000 | .|. | 0.028100
20 -0.0000230 -.00473 | .|. | 0.028103
21 -0.0001165 -.02398 | .|. | 0.028104
22 0.00002614 0.00538 | .|. | 0.028119
23 0.00017892 0.03684 | .|* | 0.028120
24 -0.0001239 -.02551 | *|. | 0.028155

35
Zero Mean 0 -1403.26 0.0001 -38.25 <.0001
1 -1696.12 0.0001 -29.13 <.0001
2 -1622.54 0.0001 -22.49 <.0001
Single Mean 0 -1403.54 0.0001 -38.25 <.0001 731.43 0.0010
1 -1697.19 0.0001 -29.13 <.0001 424.20 0.0010
2 -1624.78 0.0001 -22.49 <.0001 252.86 0.0010
Trend 0 -1405.70 0.0001 -38.29 <.0001 733.22 0.0010
1 -1706.57 0.0001 -29.20 <.0001 426.32 0.0010
2 -1645.72 0.0001 -22.57 <.0001 254.74 0.0010
AUTOCORRELATION


36
Test
AR(1) 1341.1670 <.0001
AR(2) 1341.1799 <.0001
AR(3) 1341.2363 <.0001
AR(4) 1341.2384 <.0001


37
Test
AR(1) 2.3752 0.1233
AR(2) 14.5617 0.0007
AR(3) 14.8020 0.0020
AR(4) 15.8466 0.0032
38
SLOPE OF TERM STRUCTURE
STATIONARITY

Autocorrelations
0 0.720257 1.00000 | |********************| 0
1 0.717911 0.99674 | .|********************| 0.027227
2 0.715454 0.99333 | . |********************| 0.047056
3 0.713039 0.98998 | . |********************| 0.060639
4 0.710725 0.98677 | . |********************| 0.071625
5 0.708443 0.98360 | . |********************| 0.081078
6 0.706198 0.98048 | . |********************| 0.089488
7 0.704096 0.97756 | . |********************| 0.097125
8 0.702016 0.97468 | . |******************* | 0.104164
9 0.700004 0.97188 | . |******************* | 0.110718
10 0.698029 0.96914 | . |******************* | 0.116871
11 0.695978 0.96629 | . |******************* | 0.122684
12 0.693904 0.96341 | . |******************* | 0.128202
13 0.691750 0.96042 | . |******************* | 0.133461
14 0.689654 0.95751 | . |******************* | 0.138490
15 0.687511 0.95454 | . |******************* | 0.143313
16 0.685349 0.95153 | . |******************* | 0.147951
17 0.683003 0.94828 | . |******************* | 0.152420
18 0.680581 0.94491 | . |******************* | 0.156732
19 0.678325 0.94178 | . |******************* | 0.160900
20 0.676034 0.93860 | . |******************* | 0.164935
21 0.673647 0.93529 | . |******************* | 0.168849
22 0.671053 0.93169 | . |******************* | 0.172646
23 0.668419 0.92803 | . |******************* | 0.176334
24 0.665820 0.92442 | . |****************** | 0.179918
39
Table 5.2– Original Data
Zero Mean 0 -0.9054 0.4896 -0.78 0.3802
1 -1.0598 0.4628 -0.84 0.3545
2 -1.0708 0.4610 -0.83 0.3585
Single Mean 0 -1.7601 0.8068 -1.03 0.7435 0.54 0.9417
1 -2.0694 0.7705 -1.11 0.7129 0.63 0.9140
2 -2.1121 0.7654 -1.11 0.7133 0.62 0.9148
Trend 0 -1.8991 0.9727 -1.12 0.9247 6.72 0.0370
1 -2.1962 0.9651 -1.20 0.9101 6.01 0.0630
2 -2.2285 0.9642 -1.20 0.9099 5.82 0.0738
40
Autocorrelations
0 0.0015550 1.00000 | |********************| 0
1 0.00012929 0.08314 | .|** | 0.027237
2 0.00004041 0.02599 | .|* | 0.027424
3 3.38519E-6 0.00218 | .|. | 0.027443
4 0.00003142 0.02021 | .|. | 0.027443
5 -0.0000397 -.02554 | *|. | 0.027454
6 -0.0000905 -.05818 | *|. | 0.027471
7 -1.8168E-6 -.00117 | .|. | 0.027563
8 1.1555E-6 0.00074 | .|. | 0.027563
9 0.00003788 0.02436 | .|. | 0.027563
10 0.00001340 0.00862 | .|. | 0.027579
11 0.00006302 0.04053 | .|* | 0.027581
12 0.00001376 0.00885 | .|. | 0.027625
13 -4.1149E-6 -.00265 | .|. | 0.027627
14 0.00001956 0.01258 | .|. | 0.027627
15 0.00003424 0.02202 | .|. | 0.027631
16 0.00005857 0.03767 | .|* | 0.027644
17 0.00008565 0.05508 | .|* | 0.027682
18 -0.0000366 -.02354 | .|. | 0.027764
19 0.00010694 0.06877 | .|* | 0.027778
20 0.00016064 0.10331 | .|** | 0.027904
21 0.00012103 0.07784 | .|** | 0.028187
22 0.00005078 0.03266 | .|* | 0.028346
23 -0.0000247 -.01591 | .|. | 0.028374
24 9.3807E-6 0.00603 | .|. | 0.028380

41
Zero Mean 0 -1234.91 0.0001 -33.74 <.0001
1 -1186.91 0.0001 -24.31 <.0001
2 -1190.39 0.0001 -20.22 <.0001
Single Mean 0 -1234.92 0.0001 -33.73 <.0001 568.85 0.0010
1 -1186.95 0.0001 -24.30 <.0001 295.16 0.0010
2 -1190.47 0.0001 -20.21 <.0001 204.25 0.0010
Trend 0 -1246.08 0.0001 -34.01 <.0001 578.21 0.0010
1 -1215.54 0.0001 -24.59 <.0001 302.28 0.0010
2 -1244.63 0.0001 -20.53 <.0001 210.72 0.0010
AUTOCORRELATION

42
Test
AR(1) 1342.8525 <.0001
AR(2) 1342.8660 <.0001
AR(3) 1342.8664 <.0001
AR(4) 1342.8666 <.0001

43

Test
AR(1) 9.3258 0.0023
AR(2) 9.8266 0.0073
AR(3) 9.8291 0.0201
AR(4) 10.3633 0.0347
MODEL
CO-INTEGRATION

integration.
0 0 0.0042 6.0197 15.34
1 1 0.0003 0.3718 3.84
44
VAR-MODEL
Table 7.2
CDS 1 diff Constant1 -0.08735 0.07114 -1.23 0.2197 1
XL0_1_1 -0.25408 0.03914 -6.49 0.0001 VIX(t)
XL0_1_2 1.24396 1.06906 1.16 0.2448 TRATE(t)
XL0_1_3 -0.77067 1.82220 -0.42 0.6724 SLOPE(t)
AR1_1_1 0.37176 0.02708 13.73 0.0001 CDS (t-1)
AR1_1_2 -2.39199 0.14845 -16.11 0.0001 EQ (t-1)
AR2_1_1 0.05620 0.02529 2.22 0.0265 CDS (t-2)
AR2_1_2 -0.93920 0.15738 -5.97 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00050 0.00787 -0.06 0.9495 1
XL0_2_1 0.19530 0.00433 45.08 0.0001 VIX(t)
XL0_2_2 -0.80278 0.11832 -6.78 0.0001 TRATE(t)
XL0_2_3 0.53786 0.20168 2.67 0.0077 SLOPE(t)
AR1_2_1 0.00639 0.00300 2.13 0.0333 CDS (t-1)
AR1_2_2 -0.00311 0.01643 -0.19 0.8499 EQ (t-1)
AR2_2_1 -0.01451 0.00280 -5.18 0.0001 CDS (t-2)
AR2_2_2 0.00482 0.01742 0.28 0.7819 EQ (t-2)
45
Table 7.3

1 8 253.00 < .0001
2 6 197.89 < .0001
3 8 36.12 < .0001
4 6 35.99 < .0001
5 2 235.37 < .0001
6 2 0.91 0.6347
7 2 27.26 < .0001
8 2 6.54 0.0380
9 2 0.73 0.6951
10 2 195.41 < .0001
11 2 21.46 < .0001
12 2 7.95 0.0187

Group 2 Variable: EQ 1 diff VIX1diff TRATE1diff SLOPE1diff
Group 2 Variable: VIX1diff TRATE1diff SLOPE1diff
Test 3: Group 1 Variable: EQ 1diff
Group 2 Variable: CDS 1diff VIX1diff TRATE1diff SLOPE1diff
Group 2 Variable: VIX1diff TRATE1diff SLOPE1diff
Test 5: Group 1 Variable: CDS 1diff
Group 2 Variable: EQ 1diff
Group 2 Variable: CDS1diff
Test 7: Group 1 Variable: EQ1diff
Group 2 Variable: VIX1diff
Group 2 Variable: TRATE1diff
Group 2 Variable: SLOPE1diff
Test 10: Group 1 Variable: CDS1diff
Group 2 Variable: VIX1diff
Group 2 Variable: TRATE1diff
Group 2 Variable: SLOPE1diff
46
Table 7.4
CDS 1diff 0.3674 2.60282 111.03 < .0001
EQ 1diff 0.6631 0.28808 376.16 < .0001
Table 7.5
Watson Chi Square
CDS 1diff 2.04381 9999.99 < .0001 115.12 < .0001
EQ 1diff 2.14053 1183.28 < .0001 75.17 < .0001
47
Appendix 4 – INDEX QUARTILE 1
CDS
STATIONARITY

Autocorrelations
0 487.841 1.00000 | |********************| 0
1 486.937 0.99815 | .|********************| 0.027227
2 485.710 0.99563 | . |********************| 0.047100
3 484.243 0.99263 | . |********************| 0.060729
4 482.626 0.98931 | . |********************| 0.071755
5 480.993 0.98596 | . |********************| 0.081240
6 479.274 0.98244 | . |********************| 0.089672
7 477.507 0.97882 | . |********************| 0.097325
8 475.692 0.97510 | . |********************| 0.104367
9 473.848 0.97132 | . |******************* | 0.110915
10 471.970 0.96747 | . |******************* | 0.117051
11 470.037 0.96350 | . |******************* | 0.122836
12 468.014 0.95936 | . |******************* | 0.128316
13 465.936 0.95510 | . |******************* | 0.133527
14 463.843 0.95081 | . |******************* | 0.138499
15 461.698 0.94641 | . |******************* | 0.143256
16 459.477 0.94186 | . |******************* | 0.147818
17 457.190 0.93717 | . |******************* | 0.152202
18 454.851 0.93238 | . |******************* | 0.156421
19 452.491 0.92754 | . |******************* | 0.160488
20 450.113 0.92266 | . |****************** | 0.164414
21 447.770 0.91786 | . |****************** | 0.168208
48
Autocorrelations
22 445.527 0.91326 | . |****************** | 0.171881
23 443.326 0.90875 | . |****************** | 0.175441
24 441.160 0.90431 | . |****************** | 0.178896

Zero Mean 0 0.9897 0.9112 1.15 0.9355
1 0.4921 0.8053 0.37 0.7920
2 0.2556 0.7446 0.17 0.7366
Single Mean 0 0.3447 0.9722 0.24 0.9748 0.80 0.8653
1 -1.1035 0.8765 -0.49 0.8899 0.46 0.9609
2 -1.7870 0.8037 -0.71 0.8420 0.52 0.9458
Trend 0 -1.3734 0.9831 -0.81 0.9635 2.01 0.7735
1 -3.2588 0.9257 -1.26 0.8963 1.48 0.8824
2 -4.1250 0.8791 -1.42 0.8545 1.52 0.8732
49
Autocorrelations
0 0.772498 1.00000 | |********************| 0
1 0.307236 0.39772 | .|******** | 0.027237
2 0.195739 0.25338 | .|***** | 0.031249
3 0.109234 0.14140 | .|*** | 0.032738
4 0.0068702 0.00889 | .|. | 0.033188
5 0.040710 0.05270 | .|* | 0.033190
6 0.015233 0.01972 | .|. | 0.033252
7 0.024525 0.03175 | .|* | 0.033261
8 0.016204 0.02098 | .|. | 0.033283
9 0.046833 0.06063 | .|* | 0.033293
10 0.080371 0.10404 | .|** | 0.033375
11 0.056075 0.07259 | .|* | 0.033614
12 0.0023241 0.00301 | .|. | 0.033730
13 -0.022018 -.02850 | *|. | 0.033731
14 -0.0073153 -.00947 | .|. | 0.033749
15 0.049955 0.06467 | .|* | 0.033751
16 0.053134 0.06878 | .|* | 0.033842
17 0.050843 0.06582 | .|* | 0.033946
18 0.010021 0.01297 | .|. | 0.034040
19 0.010322 0.01336 | .|. | 0.034044
20 -0.045009 -.05826 | *|. | 0.034048
21 -0.075963 -.09833 | **|. | 0.034122
22 -0.031616 -.04093 | *|. | 0.034331
23 -0.016852 -.02181 | .|. | 0.034368
24 0.045126 0.05842 | .|* | 0.0343
50
Zero Mean 0 -810.151 0.0001 -24.06 <.0001
1 -643.525 0.0001 -17.91 <.0001
2 -628.007 0.0001 -15.91 <.0001
Single Mean 0 -811.108 0.0001 -24.07 <.0001 289.66 0.0010
1 -644.919 0.0001 -17.92 <.0001 160.60 0.0010
2 -630.029 0.0001 -15.92 <.0001 126.73 0.0010
Trend 0 -813.113 0.0001 -24.10 <.0001 290.42 0.0010
1 -647.762 0.0001 -17.95 <.0001 161.11 0.0010
2 -634.339 0.0001 -15.95 <.0001 127.26 0.0010
51
EQUITY
STATIONARITY

Autocorrelations
0 51.807088 1.00000 | |********************| 0
1 51.607412 0.99615 | .|********************| 0.027227
2 51.445070 0.99301 | . |********************| 0.047037
3 51.309426 0.99039 | . |********************| 0.060617
4 51.144684 0.98721 | . |********************| 0.071614
5 50.983886 0.98411 | . |********************| 0.081077
6 50.826616 0.98107 | . |********************| 0.089495
7 50.667581 0.97800 | . |********************| 0.097141
8 50.510637 0.97498 | . |******************* | 0.104185
9 50.338238 0.97165 | . |******************* | 0.110742
10 50.169792 0.96840 | . |******************* | 0.116891
11 50.004112 0.96520 | . |******************* | 0.122694
12 49.831349 0.96186 | . |******************* | 0.128199
13 49.650716 0.95838 | . |******************* | 0.133442
14 49.458948 0.95468 | . |******************* | 0.138450
15 49.276272 0.95115 | . |******************* | 0.143247
16 49.108181 0.94790 | . |******************* | 0.147854
17 48.921946 0.94431 | . |******************* | 0.152292
18 48.724164 0.94049 | . |******************* | 0.156573
19 48.546710 0.93707 | . |******************* | 0.160706
20 48.364833 0.93356 | . |******************* | 0.164707
21 48.169356 0.92978 | . |******************* | 0.168583
22 47.990963 0.92634 | . |******************* | 0.172343
23 47.801711 0.92269 | . |****************** | 0.175995
52
Autocorrelations
24 47.610694 0.91900 | . |****************** | 0.179545

Zero Mean 0 -0.1093 0.6581 -0.25 0.5975
1 -0.0928 0.6619 -0.24 0.6004
2 -0.0786 0.6651 -0.23 0.6048
Single Mean 0 -3.4903 0.5980 -1.30 0.6326 0.84 0.8550
1 -2.6084 0.7049 -1.10 0.7161 0.61 0.9181
2 -2.0317 0.7750 -0.96 0.7681 0.47 0.9599
Trend 0 -2.0719 0.9685 -0.71 0.9717 1.58 0.8619
1 -1.0401 0.9879 -0.40 0.9873 1.76 0.8255
2 -0.3434 0.9943 -0.15 0.9940 2.12 0.7527
53
Autocorrelations
0 0.277040 1.00000 | |********************| 0
1 -0.036145 -.13047 | ***|. | 0.027237
2 -0.026308 -.09496 | **|. | 0.027696
3 0.024305 0.08773 | .|** | 0.027937
4 -0.0016870 -.00609 | .|. | 0.028141
5 -0.0030630 -.01106 | .|. | 0.028142
6 -0.0008476 -.00306 | .|. | 0.028145
7 -0.0053859 -.01944 | .|. | 0.028145
8 0.019296 0.06965 | .|* | 0.028155
9 -0.0078143 -.02821 | *|. | 0.028283
10 0.0075814 0.02737 | .|* | 0.028303
11 0.0053409 0.01928 | .|. | 0.028323
12 0.0036034 0.01301 | .|. | 0.028333
13 0.0094548 0.03413 | .|* | 0.028337
14 -0.0057296 -.02068 | .|. | 0.028368
15 -0.022478 -.08114 | **|. | 0.028379
16 0.017017 0.06142 | .|* | 0.028550
17 0.015712 0.05671 | .|* | 0.028648
18 -0.022095 -.07975 | **|. | 0.028731
19 0.0037307 0.01347 | .|. | 0.028895
20 0.0082480 0.02977 | .|* | 0.028900
21 -0.018674 -.06741 | *|. | 0.028923
22 0.0082810 0.02989 | .|* | 0.029039
23 0.0068175 0.02461 | .|. | 0.029062
24 -0.0087783 -.03169 | *|. | 0.029077
54
Zero Mean 0 -1522.75 0.0001 -41.84 <.0001
1 -1913.12 0.0001 -30.91 <.0001
2 -1564.45 0.0001 -22.21 <.0001
Single Mean 0 -1522.75 0.0001 -41.82 <.0001 874.57 0.0010
1 -1913.13 0.0001 -30.90 <.0001 477.31 0.0010
2 -1564.48 0.0001 -22.20 <.0001 246.41 0.0010
Trend 0 -1525.74 0.0001 -41.90 <.0001 877.78 0.0010
1 -1927.90 0.0001 -31.00 <.0001 480.56 0.0010
2 -1591.15 0.0001 -22.31 <.0001 248.77 0.0010
55
MODEL
CO-INTEGRATION

integration.
0 0 0.0049 7.8734 15.34
1 1 0.0009 1.2181 3.84
VAR-MODEL
Table 3.2
CDS 1 diff Constant1 0.01669 0.02095 0.8 0.4258 1
AR1_1_1 0.2817 0.02693 10.46 0.0001 CDS (t-1)
AR1_1_2 -0.40939 0.04065 -10.07 0.0001 EQ (t-1)
AR2_1_1 0.14763 0.02616 5.64 0.0001 CDS (t-2)
AR2_1_2 -0.26813 0.04141 -6.48 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00166 0.01417 -0.12 0.9068 1
AR1_2_1 0.02454 0.01821 1.35 0.1779 CDS (t-1)
AR1_2_2 -0.14057 0.02749 -5.11 0.0001 EQ (t-1)
AR2_2_1 -0.00243 0.01769 -0.14 0.8908 CDS (t-2)
AR2_2_2 -0.10397 0.028 -3.71 0.0002 EQ (t-2)
Table 3.3

1 2 125.97 <0.0001
2 2 2.01 0.3857

56
Table 3.4
CDS 1diff 0.2404 1.76789 106.11 <.0001
EQ 1diff 0.0313 0.51931 10.82 <.0001
Table 3.5
Watson Chi Square
CDS 1diff 2.04137 9999.99 <.0001 47.42 <.0001
EQ 1diff 1.98496 2423.68 <.0001 50.23 <.0001
57
CDS
STATIONARITY

Autocorrelations
0 1747.380 1.00000 | |********************| 0
1 1743.298 0.99766 | .|********************| 0.027227
2 1737.725 0.99447 | . |********************| 0.047085
3 1731.436 0.99088 | . |********************| 0.060689
4 1724.827 0.98709 | . |********************| 0.071686
5 1718.282 0.98335 | . |********************| 0.081138
6 1711.565 0.97950 | . |********************| 0.089538
7 1704.754 0.97561 | . |********************| 0.097157
8 1697.606 0.97152 | . |******************* | 0.104166
9 1690.526 0.96746 | . |******************* | 0.110679
10 1683.443 0.96341 | . |******************* | 0.116780
11 1676.059 0.95918 | . |******************* | 0.122530
12 1668.295 0.95474 | . |******************* | 0.127975
13 1660.445 0.95025 | . |******************* | 0.133151
14 1652.588 0.94575 | . |******************* | 0.138086
15 1644.437 0.94109 | . |******************* | 0.142807
16 1635.872 0.93619 | . |******************* | 0.147333
17 1627.011 0.93111 | . |******************* | 0.151678
18 1617.962 0.92594 | . |******************* | 0.155858
19 1608.919 0.92076 | . |****************** | 0.159884
20 1599.814 0.91555 | . |****************** | 0.163767
21 1590.779 0.91038 | . |****************** | 0.167519
22 1582.112 0.90542 | . |****************** | 0.171147
58
Autocorrelations
23 1573.597 0.90055 | . |****************** | 0.174661
24 1565.242 0.89577 | . |****************** | 0.178070

Zero Mean 0 1.2456 0.9455 1.20 0.9416
1 0.4815 0.8026 0.30 0.7732
2 0.5477 0.8192 0.35 0.7860
Single Mean 0 0.3169 0.9712 0.19 0.9723 0.99 0.8176
1 -1.5389 0.8316 -0.61 0.8654 0.59 0.9253
2 -1.4198 0.8445 -0.58 0.8734 0.60 0.9231
Trend 0 -1.9099 0.9725 -0.93 0.9512 1.61 0.8548
1 -4.7989 0.8350 -1.52 0.8216 1.64 0.8484
2 -4.5712 0.8505 -1.48 0.8368 1.58 0.8615
59
Autocorrelations
0 3.451462 1.00000 | |********************| 0
1 1.388682 0.40235 | .|******** | 0.027237
2 0.497149 0.14404 | .|*** | 0.031337
3 0.130639 0.03785 | .|* | 0.031825
4 -0.070437 -.02041 | .|. | 0.031858
5 -0.045129 -.01308 | .|. | 0.031868
6 -0.115866 -.03357 | *|. | 0.031872
7 0.213033 0.06172 | .|* | 0.031898
8 -0.044576 -.01292 | .|. | 0.031986
9 0.163090 0.04725 | .|* | 0.031990
10 0.448833 0.13004 | .|*** | 0.032042
11 0.119061 0.03450 | .|* | 0.032431
12 -0.152535 -.04419 | *|. | 0.032458
13 -0.231334 -.06703 | *|. | 0.032503
14 -0.065488 -.01897 | .|. | 0.032605
15 0.216767 0.06280 | .|* | 0.032613
16 0.203559 0.05898 | .|* | 0.032703
17 0.184253 0.05338 | .|* | 0.032782
18 -0.113668 -.03293 | *|. | 0.032846
19 -0.062587 -.01813 | .|. | 0.032871
20 -0.104976 -.03041 | *|. | 0.032878
21 -0.179136 -.05190 | *|. | 0.032899
22 -0.060802 -.01762 | .|. | 0.032960
23 -0.013162 -.00381 | .|. | 0.032967
24 0.139917 0.04054 | .|* | 0.032967
60
Zero Mean 0 -803.502 0.0001 -23.91 <.0001
1 -835.912 0.0001 -20.40 <.0001
2 -867.347 0.0001 -18.04 <.0001
Single Mean 0 -804.667 0.0001 -23.92 <.0001 286.18 0.0010
1 -838.286 0.0001 -20.42 <.0001 208.55 0.0010
2 -871.462 0.0001 -18.07 <.0001 163.21 0.0010
Trend 0 -806.099 0.0001 -23.94 <.0001 286.66 0.0010
1 -841.167 0.0001 -20.45 <.0001 209.04 0.0010
2 -876.766 0.0001 -18.10 <.0001 163.75 0.0010
61
EQUITY
STATIONARITY

Autocorrelations
0 41.830086 1.00000 | |********************| 0
1 41.635294 0.99534 | .|********************| 0.027227
2 41.469759 0.99139 | . |********************| 0.047012
3 41.320370 0.98781 | . |********************| 0.060558
4 41.146891 0.98367 | . |********************| 0.071512
5 40.978243 0.97964 | . |********************| 0.080923
6 40.817039 0.97578 | . |********************| 0.089282
7 40.653424 0.97187 | . |******************* | 0.096865
8 40.495265 0.96809 | . |******************* | 0.103842
9 40.322806 0.96397 | . |******************* | 0.110330
10 40.144567 0.95971 | . |******************* | 0.116406
11 39.970628 0.95555 | . |******************* | 0.122131
12 39.786625 0.95115 | . |******************* | 0.127552
13 39.599867 0.94668 | . |******************* | 0.132706
14 39.403549 0.94199 | . |******************* | 0.137621
15 39.218775 0.93757 | . |******************* | 0.142320
16 39.049548 0.93353 | . |******************* | 0.146828
17 38.860025 0.92900 | . |******************* | 0.151163
18 38.662212 0.92427 | . |****************** | 0.155338
19 38.482271 0.91997 | . |****************** | 0.159363
20 38.298194 0.91557 | . |****************** | 0.163252
21 38.104342 0.91093 | . |****************** | 0.167015
22 37.925771 0.90666 | . |****************** | 0.170658
23 37.733818 0.90207 | . |****************** | 0.174192
24 37.547004 0.89761 | . |****************** | 0.177622
62
Zero Mean 0 -0.1334 0.6526 -0.29 0.5802
1 -0.1163 0.6565 -0.28 0.5838
2 -0.1058 0.6589 -0.28 0.5863
Single Mean 0 -4.1575 0.5220 -1.39 0.5912 0.96 0.8243
1 -3.2987 0.6207 -1.22 0.6698 0.75 0.8805
2 -2.8168 0.6793 -1.11 0.7129 0.63 0.9139
Trend 0 -3.1124 0.9323 -1.00 0.9428 1.68 0.8410
1 -2.1754 0.9657 -0.77 0.9667 1.74 0.8286
2 -1.6398 0.9783 -0.62 0.9771 1.86 0.8044
63
Autocorrelations
0 0.278924 1.00000 | |********************| 0
1 -0.029002 -.10398 | **|. | 0.027237
2 -0.016501 -.05916 | *|. | 0.027530
3 0.019528 0.07001 | .|* | 0.027624
4 -0.0038686 -.01387 | .|. | 0.027755
5 -0.0063284 -.02269 | .|. | 0.027760
6 -0.0014621 -.00524 | .|. | 0.027774
7 -0.0062103 -.02227 | .|. | 0.027775
8 0.015943 0.05716 | .|* | 0.027788
9 0.0020174 0.00723 | .|. | 0.027875
10 0.0049988 0.01792 | .|. | 0.027876
11 0.0084844 0.03042 | .|* | 0.027885
12 -0.0012208 -.00438 | .|. | 0.027910
13 0.0088700 0.03180 | .|* | 0.027910
14 -0.0085014 -.03048 | *|. | 0.027937
15 -0.025642 -.09193 | **|. | 0.027962
16 0.017937 0.06431 | .|* | 0.028185
17 0.013097 0.04695 | .|* | 0.028294
18 -0.017944 -.06433 | *|. | 0.028351
19 0.0028112 0.01008 | .|. | 0.028459
20 0.0033589 0.01204 | .|. | 0.028462
21 -0.012371 -.04435 | *|. | 0.028466
22 0.011658 0.04179 | .|* | 0.028517
23 0.00012880 0.00046 | .|. | 0.028562
24 -0.0033936 -.01217 | .|. | 0.028562
64
Zero Mean 0 -1487.05 0.0001 -40.72 <.0001
1 -1712.17 0.0001 -29.24 <.0001
2 -1428.20 0.0001 -21.57 <.0001
Single Mean 0 -1487.06 0.0001 -40.71 <.0001 828.61 0.0010
1 -1712.21 0.0001 -29.23 <.0001 427.10 0.0010
2 -1428.27 0.0001 -21.56 <.0001 232.41 0.0010
Trend 0 -1489.67 0.0001 -40.77 <.0001 831.22 0.0010
1 -1723.28 0.0001 -29.31 <.0001 429.51 0.0010
2 -1447.82 0.0001 -21.65 <.0001 234.25 0.0010
MODEL
CO-INTEGRATION

integration.
0 0 0.0036 5.3292 15.34
1 1 0.0003 0.441 3.84
65
VAR-MODEL
Table 3.2
AR1_1_1 0.32866 0.02743 11.98 0.0001 CDS (t-1)
AR1_1_2 -0.77904 0.08684 -8.97 0.0001 EQ (t-1)
AR2_1_1 0.0012 0.02648 0.05 0.964 CDS (t-2)
AR2_1_2 -0.5991 0.08819 -6.79 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.0027 0.01432 -0.19 0.8505 1
AR1_2_1 0.00213 0.00879 0.24 0.8087 CDS (t-1)
AR1_2_2 -0.11207 0.02782 -4.03 0.0001 EQ (t-1)
AR2_2_1 0.01301 0.00848 1.53 0.1254 CDS (t-2)
AR2_2_2 -0.06256 0.02825 -2.21 0.027 EQ (t-2)
Table 3.3

1 2 111.71 <.0001
2 2 3.21 0.2011

Table 3.4
CDS 1diff 0.2268 1.63777 98.33 <.0001
EQ 1diff 0.0181 0.52468 6.18 <.0001
66
Table 3.5
Watson Chi Square
CDS 1diff 2.03194 9999.99 <.0001 57.76 <.0001
EQ 1diff 1.99186 1905.64 <.0001 34.22 <.0001
67
CDS
STATIONARITY

Autocorrelations
0 6161.916 1.00000 | |********************| 0
1 6150.988 0.99823 | .|********************| 0.027227
2 6134.790 0.99560 | . |********************| 0.047102
3 6116.168 0.99258 | . |********************| 0.060730
4 6096.115 0.98932 | . |********************| 0.071755
5 6075.565 0.98599 | . |********************| 0.081240
6 6053.601 0.98242 | . |********************| 0.089673
7 6030.547 0.97868 | . |********************| 0.097325
8 6007.370 0.97492 | . |******************* | 0.104366
9 5984.693 0.97124 | . |******************* | 0.110911
10 5961.822 0.96753 | . |******************* | 0.117046
11 5937.754 0.96362 | . |******************* | 0.122832
12 5912.101 0.95946 | . |******************* | 0.128314
13 5885.383 0.95512 | . |******************* | 0.133526
14 5858.410 0.95074 | . |******************* | 0.138498
15 5830.921 0.94628 | . |******************* | 0.143254
16 5802.046 0.94160 | . |******************* | 0.147815
17 5771.816 0.93669 | . |******************* | 0.152197
18 5741.068 0.93170 | . |******************* | 0.156412
19 5710.346 0.92672 | . |******************* | 0.160473
20 5679.415 0.92170 | . |****************** | 0.164392
21 5648.686 0.91671 | . |****************** | 0.168180
68
Autocorrelations
22 5618.677 0.91184 | . |****************** | 0.171844
23 5589.241 0.90706 | . |****************** | 0.175394
24 5560.034 0.90232 | . |****************** | 0.178837

Zero Mean 0 0.8530 0.8871 0.88 0.8981
1 0.0501 0.6947 0.03 0.6933
2 0.2538 0.7441 0.17 0.7365
Single Mean 0 -0.1318 0.9506 -0.08 0.9492 0.72 0.8882
1 -2.1759 0.7577 -0.86 0.8007 0.64 0.9090
2 -1.7166 0.8118 -0.73 0.8371 0.60 0.9231
Trend 0 -2.3554 0.9604 -1.17 0.9145 1.52 0.8734
1 -5.6427 0.7725 -1.73 0.7392 1.77 0.8232
2 -4.8710 0.8299 -1.60 0.7916 1.60 0.8565
69
Autocorrelations
0 10.980745 1.00000 | |********************| 0
1 4.943245 0.45017 | .|********* | 0.027237
2 1.568950 0.14288 | .|*** | 0.032288
3 0.980727 0.08931 | .|** | 0.032754
4 0.414541 0.03775 | .|* | 0.032934
5 0.736206 0.06705 | .|* | 0.032966
6 0.368956 0.03360 | .|* | 0.033067
7 -0.344732 -.03139 | *|. | 0.033092
8 -0.428562 -.03903 | *|. | 0.033114
9 0.592933 0.05400 | .|* | 0.033148
10 1.501306 0.13672 | .|*** | 0.033214
11 0.819516 0.07463 | .|* | 0.033629
12 0.208910 0.01903 | .|. | 0.033751
13 -0.661025 -.06020 | *|. | 0.033759
14 -0.525018 -.04781 | *|. | 0.033839
15 0.417138 0.03799 | .|* | 0.033889
16 0.696176 0.06340 | .|* | 0.033920
17 0.491038 0.04472 | .|* | 0.034008
18 -0.271042 -.02468 | .|. | 0.034052
19 -0.184341 -.01679 | .|. | 0.034065
20 -0.260203 -.02370 | .|. | 0.034071
21 -0.245026 -.02231 | .|. | 0.034083
22 -0.182714 -.01664 | .|. | 0.034094
23 -0.047814 -.00435 | .|. | 0.034100
24 0.529006 0.04818 | .|* | 0.034101

70
Zero Mean 0 -739.345 0.0001 -22.56 <.0001
1 -857.000 0.0001 -20.65 <.0001
2 -716.238 0.0001 -16.75 <.0001
Single Mean 0 -740.148 0.0001 -22.56 <.0001 254.57 0.0010
1 -858.834 0.0001 -20.66 <.0001 213.45 0.0010
2 -718.604 0.0001 -16.76 <.0001 140.43 0.0010
Trend 0 -741.040 0.0001 -22.57 <.0001 254.76 0.0010
1 -860.869 0.0001 -20.67 <.0001 213.72 0.0010
2 -721.295 0.0001 -16.77 <.0001 140.66 0.0010
71
EQUITY
STATIONARITY

Autocorrelations
0 46.238368 1.00000 | |********************| 0
1 46.060748 0.99616 | .|********************| 0.027227
2 45.896805 0.99261 | . |********************| 0.047037
3 45.746703 0.98937 | . |********************| 0.060607
4 45.580544 0.98577 | . |********************| 0.071585
5 45.417202 0.98224 | . |********************| 0.081026
6 45.256484 0.97876 | . |********************| 0.089418
7 45.089886 0.97516 | . |********************| 0.097035
8 44.922913 0.97155 | . |******************* | 0.104047
9 44.742909 0.96766 | . |******************* | 0.110567
10 44.557434 0.96365 | . |******************* | 0.116676
11 44.379741 0.95980 | . |******************* | 0.122434
12 44.189627 0.95569 | . |******************* | 0.127890
13 43.990113 0.95138 | . |******************* | 0.133079
14 43.784257 0.94692 | . |******************* | 0.138029
15 43.584484 0.94260 | . |******************* | 0.142763
16 43.389427 0.93839 | . |******************* | 0.147304
17 43.175923 0.93377 | . |******************* | 0.151671
18 42.954042 0.92897 | . |******************* | 0.155874
19 42.741529 0.92437 | . |****************** | 0.159926
20 42.526218 0.91972 | . |****************** | 0.163838
21 42.298224 0.91479 | . |****************** | 0.167622
22 42.076705 0.91000 | . |****************** | 0.171283
72
Autocorrelations
23 41.844116 0.90497 | . |****************** | 0.174830
24 41.620640 0.90013 | . |****************** | 0.178268

Zero Mean 0 -0.2782 0.6197 -0.62 0.4487
1 -0.2700 0.6216 -0.65 0.4366
2 -0.2581 0.6243 -0.67 0.4278
Single Mean 0 -1.3754 0.8492 -0.55 0.8780 0.29 0.9900
1 -0.9227 0.8933 -0.40 0.9069 0.25 0.9900
2 -0.5375 0.9246 -0.25 0.9294 0.23 0.9900
Trend 0 -1.4939 0.9810 -0.60 0.9784 1.82 0.8125
1 -1.0295 0.9880 -0.45 0.9858 1.96 0.7837
2 -0.6347 0.9921 -0.30 0.9907 2.23 0.7295
73
Autocorrelations
0 0.210840 1.00000 | |********************| 0
1 -0.015696 -.07445 | *|. | 0.027237
2 -0.014873 -.07054 | *|. | 0.027387
3 0.010715 0.05082 | .|* | 0.027522
4 -0.0007388 -.00350 | .|. | 0.027591
5 -0.0003609 -.00171 | .|. | 0.027592
6 0.00088089 0.00418 | .|. | 0.027592
7 -0.0031969 -.01516 | .|. | 0.027592
8 0.013149 0.06237 | .|* | 0.027598
9 0.00022184 0.00105 | .|. | 0.027703
10 0.0023432 0.01111 | .|. | 0.027703
11 0.0094430 0.04479 | .|* | 0.027706
12 0.0043277 0.02053 | .|. | 0.027760
13 0.0043163 0.02047 | .|. | 0.027771
14 -0.0012247 -.00581 | .|. | 0.027782
15 -0.014996 -.07113 | *|. | 0.027783
16 0.016879 0.08005 | .|** | 0.027918
17 0.012878 0.06108 | .|* | 0.028088
18 -0.0091542 -.04342 | *|. | 0.028186
19 0.00055910 0.00265 | .|. | 0.028235
20 0.0034836 0.01652 | .|. | 0.028236
21 -0.010097 -.04789 | *|. | 0.028243
22 0.0093670 0.04443 | .|* | 0.028303
23 -0.0012766 -.00605 | .|. | 0.028355
24 -0.0016588 -.00787 | .|. | 0.028356
74
Zero Mean 0 -1446.99 0.0001 -39.52 <.0001
1 -1684.71 0.0001 -29.00 <.0001
2 -1481.66 0.0001 -21.82 <.0001
Single Mean 0 -1447.31 0.0001 -39.51 <.0001 780.67 0.0010
1 -1686.04 0.0001 -29.00 <.0001 420.45 0.0010
2 -1484.22 0.0001 -21.82 <.0001 238.07 0.0010
Trend 0 -1450.86 0.0001 -39.60 <.0001 784.12 0.0010
1 -1700.71 0.0001 -29.11 <.0001 423.69 0.0010
2 -1511.97 0.0001 -21.94 <.0001 240.62 0.0010
MODEL
75
CO-INTEGRATION

integration.
0 0 0.0049 7.5076 15.34
1 1 0.0007 0.8945 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.38875 0.02744 14.17 0.0001 CDS (t-1)
AR1_1_2 -2.39542 0.16573 -14.45 0.0001 EQ (t-1)
AR2_1_1 -0.02298 0.02561 -0.9 0.3696 CDS (t-2)
AR2_1_2 -0.84414 0.17646 -4.78 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00761 0.01247 -0.61 0.5419 1
AR1_2_1 0.00749 0.00457 1.64 0.1015 CDS (t-1)
AR1_2_2 -0.07083 0.02761 -2.57 0.0104 EQ (t-1)
AR2_2_1 -0.00828 0.00427 -1.94 0.0523 CDS (t-2)
AR2_2_2 -0.06177 0.02939 -2.1 0.0358 EQ (t-2)
Table 3.3

1 2 217.84 <.0001
2 2 4.48 0.1066

76
Table 3.4
CDS 1diff 0.3179 2.74318 156.26 <.0001
EQ 1diff 0.0147 0.45693 4.99 0.0005
Table 3.5
Watson Chi Square
CDS 1diff 2.00527 9999.99 <.0001 75.64 <.0001
EQ 1diff 1.99343 788.3 <.0001 15.03 0.0001
77
CDS
STATIONARITY

Autocorrelations
0 66244.606 1.00000 | |********************| 0
1 66106.545 0.99792 | .|********************| 0.027227
2 65936.470 0.99535 | . |********************| 0.047092
3 65736.932 0.99234 | . |********************| 0.060717
4 65516.341 0.98901 | . |********************| 0.071739
5 65285.445 0.98552 | . |********************| 0.081220
6 65039.532 0.98181 | . |********************| 0.089647
7 64781.444 0.97791 | . |********************| 0.097292
8 64517.552 0.97393 | . |******************* | 0.104324
9 64252.633 0.96993 | . |******************* | 0.110859
10 63987.650 0.96593 | . |******************* | 0.116981
11 63719.563 0.96188 | . |******************* | 0.122751
12 63439.960 0.95766 | . |******************* | 0.128217
13 63151.039 0.95330 | . |******************* | 0.133414
14 62851.574 0.94878 | . |******************* | 0.138371
15 62545.052 0.94415 | . |******************* | 0.143112
16 62220.886 0.93926 | . |******************* | 0.147658
17 61881.771 0.93414 | . |******************* | 0.152022
18 61535.641 0.92892 | . |******************* | 0.156219
19 61178.057 0.92352 | . |****************** | 0.160262
20 60817.479 0.91807 | . |****************** | 0.164159
21 60456.240 0.91262 | . |****************** | 0.167922
78
Autocorrelations
22 60106.138 0.90734 | . |****************** | 0.171559
23 59765.185 0.90219 | . |****************** | 0.175081
24 59429.765 0.89713 | . |****************** | 0.178494

Zero Mean 0 1.7801 0.9821 2.28 0.9949
1 1.3036 0.9514 1.07 0.9260
2 1.2456 0.9455 0.99 0.9150
Single Mean 0 1.0972 0.9905 0.94 0.9961 2.90 0.3252
1 0.0675 0.9608 0.04 0.9607 0.99 0.8167
2 -0.0718 0.9538 -0.04 0.9539 0.94 0.8308
Trend 0 -1.1928 0.9858 -0.72 0.9706 2.36 0.7043
1 -3.1584 0.9303 -1.23 0.9029 1.57 0.8629
2 -3.3589 0.9210 -1.27 0.8947 1.54 0.8706

79
Autocorrelations
0 66.389010 1.00000 | |********************| 0
1 27.518176 0.41450 | .|******** | 0.027237
2 12.903900 0.19437 | .|**** | 0.031571
3 10.066270 0.15163 | .|*** | 0.032447
4 8.589973 0.12939 | .|*** | 0.032968
5 10.527960 0.15858 | .|*** | 0.033343
6 4.193588 0.06317 | .|* | 0.033898
7 2.480737 0.03737 | .|* | 0.033985
8 4.156687 0.06261 | .|* | 0.034015
9 6.403292 0.09645 | .|** | 0.034101
10 4.679316 0.07048 | .|* | 0.034303
11 2.101002 0.03165 | .|* | 0.034410
12 3.369152 0.05075 | .|* | 0.034432
13 1.704481 0.02567 | .|* | 0.034487
14 -0.707715 -.01066 | .|. | 0.034501
15 3.670081 0.05528 | .|* | 0.034504
16 6.292292 0.09478 | .|** | 0.034569
17 6.849770 0.10318 | .|** | 0.034761
18 2.700210 0.04067 | .|* | 0.034988
19 -3.378693 -.05089 | *|. | 0.035023
20 -2.849529 -.04292 | *|. | 0.035078
21 -4.383748 -.06603 | *|. | 0.035117
22 -2.942426 -.04432 | *|. | 0.035209
23 -0.936881 -.01411 | .|. | 0.035250
24 0.533386 0.00803 | .|. | 0.035254

80
Zero Mean 0 -784.950 0.0001 -23.51 <.0001
1 -735.502 0.0001 -19.04 <.0001
2 -601.364 0.0001 -15.47 <.0001
Single Mean 0 -787.845 0.0001 -23.56 <.0001 277.47 0.0010
1 -740.726 0.0001 -19.10 <.0001 182.36 0.0010
2 -607.730 0.0001 -15.52 <.0001 120.49 0.0010
Trend 0 -790.310 0.0001 -23.60 <.0001 278.41 0.0010
1 -745.254 0.0001 -19.14 <.0001 183.15 0.0010
2 -613.312 0.0001 -15.56 <.0001 121.08 0.0010
81
EQUITY
STATIONARITY

Autocorrelations
0 69.633586 1.00000 | |********************| 0
1 69.377450 0.99632 | .|********************| 0.027227
2 69.137749 0.99288 | . |********************| 0.047042
3 68.909153 0.98960 | . |********************| 0.060618
4 68.656393 0.98597 | . |********************| 0.071599
5 68.407848 0.98240 | . |********************| 0.081041
6 68.161865 0.97886 | . |********************| 0.089434
7 67.921730 0.97542 | . |********************| 0.097052
8 67.676962 0.97190 | . |******************* | 0.104066
9 67.418154 0.96818 | . |******************* | 0.110590
10 67.149494 0.96433 | . |******************* | 0.116704
11 66.896494 0.96069 | . |******************* | 0.122469
12 66.629758 0.95686 | . |******************* | 0.127933
13 66.350914 0.95286 | . |******************* | 0.133133
14 66.062776 0.94872 | . |******************* | 0.138096
15 65.778474 0.94464 | . |******************* | 0.142845
16 65.504037 0.94070 | . |******************* | 0.147403
17 65.207032 0.93643 | . |******************* | 0.151788
18 64.903073 0.93207 | . |******************* | 0.156012
19 64.611188 0.92787 | . |******************* | 0.160087
20 64.314360 0.92361 | . |****************** | 0.164025
21 64.006585 0.91919 | . |****************** | 0.167836
22 63.702294 0.91482 | . |****************** | 0.171527
23 63.390094 0.91034 | . |****************** | 0.175107
24 63.089742 0.90602 | . |****************** | 0.178580
82
Zero Mean 0 -0.3047 0.6137 -0.72 0.4051
1 -0.3019 0.6143 -0.77 0.3851
2 -0.2974 0.6153 -0.79 0.3741
Single Mean 0 -0.4034 0.9340 -0.18 0.9386 0.26 0.9900
1 -0.0323 0.9559 -0.02 0.9561 0.30 0.9896
2 0.1801 0.9658 0.09 0.9650 0.34 0.9836
Trend 0 -2.1820 0.9655 -0.92 0.9527 2.58 0.6582
1 -1.7276 0.9765 -0.78 0.9660 2.72 0.6316
2 -1.4755 0.9814 -0.70 0.9722 2.88 0.5976
83
Autocorrelations
0 0.260910 1.00000 | |********************| 0
1 -0.018514 -.07096 | *|. | 0.027237
2 -0.011020 -.04224 | *|. | 0.027374
3 0.015030 0.05761 | .|* | 0.027422
4 -0.0035280 -.01352 | .|. | 0.027511
5 0.0019666 0.00754 | .|. | 0.027516
6 -0.010959 -.04200 | *|. | 0.027518
7 0.00017762 0.00068 | .|. | 0.027565
8 0.013935 0.05341 | .|* | 0.027565
9 0.0026603 0.01020 | .|. | 0.027642
10 0.00026354 0.00101 | .|. | 0.027645
11 0.010563 0.04048 | .|* | 0.027645
12 0.0050721 0.01944 | .|. | 0.027689
13 0.0078636 0.03014 | .|* | 0.027699
14 0.0023674 0.00907 | .|. | 0.027723
15 -0.022707 -.08703 | **|. | 0.027726
16 0.018578 0.07120 | .|* | 0.027927
17 0.014063 0.05390 | .|* | 0.028062
18 -0.012234 -.04689 | *|. | 0.028139
19 0.00058535 0.00224 | .|. | 0.028196
20 0.00065749 0.00252 | .|. | 0.028197
21 -0.0091388 -.03503 | *|. | 0.028197
22 0.0054752 0.02099 | .|. | 0.028229
23 -0.0021918 -.00840 | .|. | 0.028241
24 -0.0021528 -.00825 | .|. | 0.028242
84
Zero Mean 0 -1442.05 0.0001 -39.38 <.0001
1 -1583.64 0.0001 -28.12 <.0001
2 -1348.18 0.0001 -21.16 <.0001
Single Mean 0 -1442.60 0.0001 -39.39 <.0001 775.60 0.0010
1 -1585.77 0.0001 -28.13 <.0001 395.70 0.0010
2 -1351.98 0.0001 -21.17 <.0001 224.11 0.0010
Trend 0 -1447.22 0.0001 -39.50 <.0001 780.22 0.0010
1 -1603.12 0.0001 -28.27 <.0001 399.60 0.0010
2 -1382.10 0.0001 -21.31 <.0001 227.08 0.0010
85
MODEL
CO-INTEGRATION

integration.
0 0 0.005 6.9081 15.34
1 1 0.0002 0.2142 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.32067 0.02731 11.74 0.0001 CDS (t-1)
AR1_1_2 -5.35306 0.37236 -14.38 0.0001 EQ (t-1)
AR2_1_1 0.06593 0.02576 2.56 0.0106 CDS (t-2)
AR2_1_2 -1.82639 0.39642 -4.61 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.01107 0.01394 -0.79 0.4272 1
AR1_2_1 0.00123 0.00202 0.61 0.5428 CDS (t-1)
AR1_2_2 -0.0718 0.02754 -2.61 0.0092 EQ (t-1)
AR2_2_1 -0.00171 0.0019 -0.9 0.3683 CDS (t-2)
AR2_2_2 -0.04266 0.02931 -1.46 0.1458 EQ (t-2)
Table 3.3

1 2 215.72 <.0001
2 2 0.88 0.6456

86
Table 3.4
CDS 1diff 0.2874 6.89533 135.22 <.0001
EQ 1diff 0.008 0.5099 2.69 0.0297
Table 3.5
Watson Chi Square
CDS 1diff 2.01629 6964.27 <.0001 114.72 <.0001
EQ 1diff 1.99508 784.65 <.0001 22.77 <.0001
87
Appendix 8 - INDEX 02.01.2004 – 08.08.2007 (BEFORE)
CDS
STATIONARITY

Autocorrelations
0 96.651300 1.00000 | |********************| 0
1 96.093635 0.99423 | .|********************| 0.033131
2 95.184125 0.98482 | . |********************| 0.057165
3 94.066460 0.97326 | . |******************* | 0.073465
4 92.910225 0.96129 | . |******************* | 0.086467
5 91.691349 0.94868 | . |******************* | 0.097495
6 90.421234 0.93554 | . |******************* | 0.107150
7 89.099412 0.92186 | . |****************** | 0.115770
8 87.750888 0.90791 | . |****************** | 0.123565
9 86.513994 0.89511 | . |****************** | 0.130683
10 85.256492 0.88210 | . |****************** | 0.137248
11 84.119144 0.87034 | . |***************** | 0.143336
12 82.974861 0.85850 | . |***************** | 0.149024
13 81.886565 0.84724 | . |***************** | 0.154358
14 80.822554 0.83623 | . |***************** | 0.159381
15 79.802379 0.82567 | . |***************** | 0.164126
16 78.841662 0.81573 | . |**************** | 0.168624
17 77.942434 0.80643 | . |**************** | 0.172901
18 77.065083 0.79735 | . |**************** | 0.176982
19 76.140307 0.78778 | . |**************** | 0.180882
88
Autocorrelations
20 75.168416 0.77773 | . |**************** | 0.184610
21 74.142288 0.76711 | . |*************** | 0.188172
22 73.130918 0.75665 | . |*************** | 0.191574
23 72.159206 0.74659 | . |*************** | 0.194827
24 71.182406 0.73649 | . |*************** | 0.197943

Zero Mean 0 0.3169 0.7601 0.71 0.8684
1 0.1372 0.7152 0.21 0.7467
2 0.0014 0.6833 0.00 0.6836
Single Mean 0 -0.7553 0.9076 -0.31 0.9212 0.35 0.9823
1 -5.0449 0.4307 -1.38 0.5945 1.06 0.7999
2 -9.1204 0.1661 -1.99 0.2891 2.06 0.5434
Trend 0 3.1552 0.9999 0.99 0.9999 1.87 0.8032
1 -5.0744 0.8151 -1.05 0.9353 0.95 0.9737
2 -13.7558 0.2306 -2.21 0.4855 2.57 0.6615
89
Autocorrelations
0 0.633255 1.00000 | |********************| 0
1 0.220137 0.34763 | .|******* | 0.033150
2 0.181942 0.28731 | .|****** | 0.036939
3 0.105308 0.16630 | . |*** | 0.039318
4 0.070679 0.11161 | . |** | 0.040084
5 0.071306 0.11260 | . |** | 0.040424
6 0.053099 0.08385 | . |** | 0.040767
7 0.0030219 0.00477 | .|. | 0.040956
8 0.023053 0.03640 | . |*. | 0.040957
9 0.020737 0.03275 | . |*. | 0.040992
10 0.034394 0.05431 | . |*. | 0.041021
11 0.065409 0.10329 | . |** | 0.041100
12 0.039727 0.06274 | . |*. | 0.041384
13 0.0027958 0.00441 | .|. | 0.041489
14 0.0077430 0.01223 | .|. | 0.041489
15 -0.037091 -.05857 | .*| . | 0.041493
16 -0.0007945 -.00125 | .|. | 0.041584
17 -0.0008221 -.00130 | .|. | 0.041584
18 0.031065 0.04906 | . |*. | 0.041584
19 0.037168 0.05869 | . |*. | 0.041647
20 0.033862 0.05347 | . |*. | 0.041738
21 0.045403 0.07170 | . |*. | 0.041813
22 0.017986 0.02840 | . |*. | 0.041948
23 -0.0048612 -.00768 | .|. | 0.041969
24 0.0081877 0.01293 | .|. | 0.041971
90
Zero Mean 0 -572.633 0.0001 -19.74 <.0001
1 -379.794 0.0001 -13.21 <.0001
2 -373.728 0.0001 -11.96 <.0001
Single Mean 0 -573.105 0.0001 -19.74 <.0001 194.86 0.0010
1 -380.365 0.0001 -13.20 <.0001 87.20 0.0010
2 -374.410 0.0001 -11.95 <.0001 71.45 0.0010
Trend 0 -574.960 0.0001 -19.75 <.0001 195.19 0.0010
1 -381.972 0.0001 -13.19 <.0001 87.24 0.0010
2 -376.717 0.0001 -11.95 <.0001 71.53 0.0010
AUTOCORRELATION


91
Test
AR(1) 904.9923 <.0001
AR(2) 905.7488 <.0001
AR(3) 905.9484 <.0001
AR(4) 905.9499 <.0001



Test
AR(1) 116.8977 <.0001
92
Test
AR(2) 146.6671 <.0001
AR(3) 146.6821 <.0001
AR(4) 146.6958 <.0001
93
EQUITY
STATIONARITY

Autocorrelations
0 27.870549 1.00000 | |********************| 0
1 27.750637 0.99570 | .|********************| 0.033131
2 27.637238 0.99163 | . |********************| 0.057221
3 27.530262 0.98779 | . |********************| 0.073709
4 27.430339 0.98421 | . |********************| 0.087035
5 27.318613 0.98020 | . |********************| 0.098497
6 27.209672 0.97629 | . |********************| 0.108678
7 27.109133 0.97268 | . |******************* | 0.117913
8 27.004121 0.96891 | . |******************* | 0.126414
9 26.908340 0.96548 | . |******************* | 0.134319
10 26.806943 0.96184 | . |******************* | 0.141732
11 26.690625 0.95766 | . |******************* | 0.148725
12 26.572712 0.95343 | . |******************* | 0.155346
13 26.444233 0.94882 | . |******************* | 0.161642
14 26.321292 0.94441 | . |******************* | 0.167644
15 26.191998 0.93977 | . |******************* | 0.173386
16 26.064613 0.93520 | . |******************* | 0.178890
17 25.939207 0.93070 | . |******************* | 0.184178
18 25.813160 0.92618 | . |******************* | 0.189271
19 25.677569 0.92132 | . |****************** | 0.194182
20 25.546984 0.91663 | . |****************** | 0.198922
21 25.425562 0.91227 | . |****************** | 0.203506
94
Autocorrelations
22 25.307743 0.90805 | . |****************** | 0.207947
23 25.180763 0.90349 | . |****************** | 0.212255
24 25.050059 0.89880 | . |****************** | 0.216435

Zero Mean 0 0.3647 0.7724 1.70 0.9786
1 0.3590 0.7709 1.67 0.9773
2 0.3592 0.7710 1.74 0.9808
Single Mean 0 -1.1151 0.8754 -0.64 0.8584 1.81 0.6078
1 -1.0379 0.8827 -0.60 0.8685 1.72 0.6298
2 -0.9126 0.8941 -0.55 0.8789 1.81 0.6057
Trend 0 -21.8472 0.0468 -3.35 0.0588 5.65 0.0829
1 -22.4760 0.0410 -3.40 0.0528 5.81 0.0742
2 -21.0890 0.0549 -3.28 0.0713 5.41 0.0959
95
Autocorrelations
0 0.091781 1.00000 | |********************| 0
1 -0.0001576 -.00172 | .|. | 0.033150
2 -0.0040826 -.04448 | *|. | 0.033150
3 0.0023759 0.02589 | .|* | 0.033215
4 -0.0022178 -.02416 | .|. | 0.033237
5 -0.0020518 -.02235 | .|. | 0.033257
6 -0.0046455 -.05061 | *|. | 0.033273
7 -0.0020426 -.02226 | .|. | 0.033358
8 -0.0017135 -.01867 | .|. | 0.033374
9 -0.0027249 -.02969 | *|. | 0.033386
10 0.0028345 0.03088 | .|* | 0.033415
11 0.0012678 0.01381 | .|. | 0.033446
12 -0.0011882 -.01295 | .|. | 0.033452
13 -0.0012460 -.01358 | .|. | 0.033458
14 -0.0022198 -.02419 | .|. | 0.033464
15 -0.0012702 -.01384 | .|. | 0.033483
16 -0.0004264 -.00465 | .|. | 0.033489
17 -0.0017054 -.01858 | .|. | 0.033490
18 0.0029611 0.03226 | .|* | 0.033501
19 -0.0023682 -.02580 | *|. | 0.033535
20 -0.0000171 -.00019 | .|. | 0.033557
21 0.00042032 0.00458 | .|. | 0.033557
22 0.00042125 0.00459 | .|. | 0.033558
23 0.0020574 0.02242 | .|. | 0.033559
24 0.0020930 0.02280 | .|. | 0.033575
96
Zero Mean 0 -907.502 0.0001 -30.07 <.0001
1 -984.544 0.0001 -22.13 <.0001
2 -899.190 0.0001 -17.19 <.0001
Single Mean 0 -910.565 0.0001 -30.15 <.0001 454.54 0.0010
1 -994.674 0.0001 -22.23 <.0001 247.18 0.0010
2 -917.380 0.0001 -17.30 <.0001 149.67 0.0010
Trend 0 -910.617 0.0001 -30.14 <.0001 454.13 0.0010
1 -994.841 0.0001 -22.23 <.0001 246.98 0.0010
2 -917.526 0.0001 -17.29 <.0001 149.56 0.0010
97
AUTOCORRELATION



Test
AR(1) 905.9664 <.0001
AR(2) 905.9674 <.0001
AR(3) 905.9713 <.0001
AR(4) 905.9728 <.0001
98



Test
AR(1) 0.0027 0.9586
AR(2) 1.8083 0.4049
AR(3) 2.4132 0.4912
AR(4) 3.0831 0.5440
99
MODEL
CO-INTEGRATION

integration.
0 0 0.0049 4.5135 15.34
1 1 0.0000 0.0281 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.23224 0.03338 6.96 0.0001 CDS (t-1)
AR1_1_2 -0.54424 0.07775 -7.00 0.0001 EQ (t-1)
AR2_1_1 0.18672 0.03239 5.77 0.0001 CDS (t-2)
AR2_1_2 -0.41276 0.07970 -5.18 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.02027 0.01009 -2.01 0.0448 1
AR1_2_1 -0.03330 0.01437 -2.32 0.0207 CDS (t-1)
AR1_2_2 -0.01500 0.03347 -0.45 0.6542 EQ (t-1)
AR2_2_1 -0.00927 0.01394 -0.66 0.5064 CDS (t-2)
AR2_2_2 -0.06926 0.03431 -2.02 0.0439 EQ (t-2)
Table 5.3

1 2 73.10 <0.0001
2 2 7.67 0.0216

100
Table 5.4
CDS 1diff 0.2237 0.70242 65.04 < 0.0001
EQ 1diff 0.0104 0.30240 2.37 0.0508
Table 5.5
Watson Chi Square
CDS 1diff 1.90525 5987.61 < 0.0001 67.30 < 0.0001
EQ 1diff 1.99396 255.38 < 0.0001 6.81 0.0092
101
Appendix 9 - INDEX 09.08.2007 – 01.05.2009 (AFTER)
CDS
STATIONARITY

Autocorrelations
0 16283.564 1.00000 | |********************| 0
1 16233.320 0.99691 | . |********************| 0.047782
2 16167.486 0.99287 | . |********************| 0.082590
3 16091.868 0.98823 | . |********************| 0.106407
4 16009.714 0.98318 | . |********************| 0.125626
5 15925.193 0.97799 | . |********************| 0.142112
6 15836.032 0.97252 | . |******************* | 0.156727
7 15742.621 0.96678 | . |******************* | 0.169947
8 15647.018 0.96091 | . |******************* | 0.182071
9 15549.658 0.95493 | . |******************* | 0.193303
10 15449.930 0.94881 | . |******************* | 0.203789
11 15346.967 0.94248 | . |******************* | 0.213636
12 15240.230 0.93593 | . |******************* | 0.222927
13 15131.410 0.92924 | . |******************* | 0.231725
14 15021.212 0.92248 | . |****************** | 0.240082
15 14909.960 0.91564 | . |****************** | 0.248042
16 14794.327 0.90854 | . |****************** | 0.255643
17 14674.078 0.90116 | . |****************** | 0.262911
18 14550.737 0.89358 | . |****************** | 0.269871
19 14425.125 0.88587 | . |****************** | 0.276544
102
Autocorrelations
20 14299.224 0.87814 | . |****************** | 0.282949
21 14174.374 0.87047 | . |***************** | 0.289104
22 14053.912 0.86307 | . |***************** | 0.295027
23 13935.965 0.85583 | . |***************** | 0.300737
24 13818.758 0.84863 | . |***************** | 0.306247

Zero Mean 0 0.6032 0.8322 1.30 0.9512
1 0.3800 0.7760 0.48 0.8188
2 0.4015 0.7815 0.52 0.8279
Single Mean 0 -0.8374 0.9004 -0.91 0.7837 2.51 0.4291
1 -1.6141 0.8229 -1.05 0.7374 1.24 0.7543
2 -1.5736 0.8274 -1.05 0.7377 1.29 0.7405
Trend 0 -0.8293 0.9901 -0.35 0.9890 0.42 0.9900
1 -5.8926 0.7515 -1.45 0.8435 1.20 0.9373
2 -5.5195 0.7807 -1.38 0.8648 1.11 0.9524
103
Autocorrelations
0 31.228610 1.00000 | |********************| 0
1 14.845397 0.47538 | . |********** | 0.047782
2 6.365027 0.20382 | . |**** | 0.057576
3 4.164605 0.13336 | . |*** | 0.059200
4 2.977120 0.09533 | . |** | 0.059882
5 4.025380 0.12890 | . |*** | 0.060228
6 1.889053 0.06049 | . |*. | 0.060854
7 0.560985 0.01796 | .|. | 0.060992
8 0.757395 0.02425 | .|. | 0.061004
9 2.513010 0.08047 | . |** | 0.061026
10 2.910430 0.09320 | . |** | 0.061267
11 1.341970 0.04297 | . |*. | 0.061590
12 0.572590 0.01834 | .|. | 0.061659
13 -0.892116 -.02857 | .*| . | 0.061671
14 -1.080856 -.03461 | .*| . | 0.061701
15 1.832296 0.05867 | . |*. | 0.061746
16 2.495283 0.07990 | . |** | 0.061873
17 2.861507 0.09163 | . |** | 0.062108
18 0.626563 0.02006 | .|. | 0.062416
19 -1.318758 -.04223 | .*| . | 0.062431
20 -1.544742 -.04947 | .*| . | 0.062496
21 -2.624431 -.08404 | .**| . | 0.062585
22 -1.700078 -.05444 | . *| . | 0.062842
23 -0.462074 -.01480 | . | . | 0.062950
24 0.961437 0.03079 | . |* . | 0.062958
104
Zero Mean 0 -226.732 0.0001 -12.36 <.0001
1 -236.584 0.0001 -10.80 <.0001
2 -199.572 0.0001 -8.90 <.0001
Single Mean 0 -228.906 0.0001 -12.42 <.0001 77.16 0.0010
1 -240.668 0.0001 -10.87 <.0001 59.13 0.0010
2 -204.843 0.0001 -8.98 <.0001 40.30 0.0010
Trend 0 -229.266 0.0001 -12.43 <.0001 77.21 0.0010
1 -241.127 0.0001 -10.88 <.0001 59.17 0.0010
2 -205.380 0.0001 -8.98 <.0001 40.38 0.0010
105
AUTOCORRELATION



Test
AR(1) 435.8099 <.0001
AR(2) 435.8819 <.0001
AR(3) 435.8883 <.0001
AR(4) 435.8909 <.0001
106
Graph 2.2– 1. difference



Test
AR(1) 99.1505 <.0001
AR(2) 99.3824 <.0001
AR(3) 100.6910 <.0001
AR(4) 100.7847 <.0001
107
EQUITY
STATIONARITY

Autocorrelations
0 81.133591 1.00000 | |********************| 0
1 80.615699 0.99362 | . |********************| 0.047782
2 80.161834 0.98802 | . |********************| 0.082409
3 79.746368 0.98290 | . |********************| 0.106060
4 79.293085 0.97732 | . |********************| 0.125140
5 78.871618 0.97212 | . |******************* | 0.141497
6 78.457282 0.96701 | . |******************* | 0.156002
7 77.994174 0.96131 | . |******************* | 0.169135
8 77.535316 0.95565 | . |******************* | 0.181180
9 77.027118 0.94939 | . |******************* | 0.192345
10 76.482718 0.94268 | . |******************* | 0.202761
11 75.968290 0.93634 | . |******************* | 0.212532
12 75.408974 0.92944 | . |******************* | 0.221750
13 74.879979 0.92292 | . |****************** | 0.230473
14 74.288705 0.91563 | . |****************** | 0.238762
15 73.731254 0.90876 | . |****************** | 0.246648
16 73.192745 0.90213 | . |****************** | 0.254178
17 72.594906 0.89476 | . |****************** | 0.261386
18 71.956316 0.88689 | . |****************** | 0.268287
19 71.390605 0.87991 | . |****************** | 0.274900
20 70.800064 0.87264 | . |***************** | 0.281256
21 70.195723 0.86519 | . |***************** | 0.287371
108
Autocorrelations
22 69.624079 0.85814 | . |***************** | 0.293258
23 69.013716 0.85062 | . |***************** | 0.298936
24 68.416420 0.84326 | . |***************** | 0.304412

Zero Mean 0 -0.5589 0.5572 -1.46 0.1355
1 -0.5482 0.5595 -1.64 0.0959
2 -0.5434 0.5605 -1.80 0.0691
Single Mean 0 -1.3686 0.8495 -0.79 0.8205 1.18 0.7700
1 -1.0356 0.8826 -0.68 0.8480 1.39 0.7143
2 -0.8441 0.8999 -0.62 0.8637 1.64 0.6524
Trend 0 -11.4032 0.3443 -2.44 0.3596 2.98 0.5804
1 -8.8432 0.5163 -2.13 0.5273 2.27 0.7219
2 -7.2756 0.6395 -1.92 0.6429 1.85 0.8078
109
Autocorrelations
0 0.558764 1.00000 | |********************| 0
1 -0.077341 -.13841 | ***| . | 0.047782
2 -0.046861 -.08387 | **| . | 0.048689
3 0.048535 0.08686 | . |** | 0.049017
4 -0.010686 -.01913 | .|. | 0.049368
5 -0.0019795 -.00354 | .|. | 0.049384
6 0.0019551 0.00350 | .|. | 0.049385
7 -0.016660 -.02982 | .*| . | 0.049386
8 0.046985 0.08409 | . |** | 0.049427
9 -0.0008937 -.00160 | .|. | 0.049752
10 0.00077748 0.00139 | .|. | 0.049752
11 0.020375 0.03646 | . |*. | 0.049752
12 -0.0004679 -.00084 | .|. | 0.049813
13 0.024220 0.04335 | . |*. | 0.049813
14 -0.017197 -.03078 | .*| . | 0.049899
15 -0.061003 -.10917 | **| . | 0.049943
16 0.047233 0.08453 | . |** | 0.050485
17 0.044474 0.07959 | . |** | 0.050807
18 -0.054735 -.09796 | **| . | 0.051091
19 0.010212 0.01828 | .|. | 0.051518
20 0.018388 0.03291 | . |*. | 0.051533
21 -0.039918 -.07144 | .*| . | 0.051581
22 0.014431 0.02583 | . |*. | 0.051806
23 0.0061530 0.01101 | .|. | 0.051835
24 -0.023905 -.04278 | .*| . | 0.051841
110
Zero Mean 0 -495.356 0.0001 -24.02 <.0001
1 -602.590 0.0001 -17.36 <.0001
2 -481.471 0.0001 -12.41 <.0001
Single Mean 0 -497.501 0.0001 -24.10 <.0001 290.45 0.0010
1 -612.789 0.0001 -17.48 <.0001 152.79 0.0010
2 -499.018 0.0001 -12.54 <.0001 78.57 0.0010
Trend 0 -497.497 0.0001 -24.07 <.0001 289.79 0.0010
1 -612.801 0.0001 -17.46 <.0001 152.44 0.0010
2 -499.080 0.0001 -12.52 <.0001 78.39 0.0010
111
AUTOCORRELATION



Test
AR(1) 433.8382 <.0001
AR(2) 433.8706 <.0001
AR(3) 433.8850 <.0001
AR(4) 433.8866 <.0001
112


Test
AR(1) 99.1505 <.0001
AR(2) 99.3824 <.0001
AR(3) 100.6910 <.0001
AR(4) 100.7847 <.0001
113
MODEL
CO-INTEGRATION

integration.
0 0 0.0494 22.4888 15.34
1 1 0.0010 0.4204 3.84
VECM-MODEL
Table 5.2 – Long-Run Parameter Beta Estimates When RANK = 1

Variable 1
CDS 0.04851
EQUITY 0.67773
Table 5.3 – Adjustment Coefficient Alpha Estimates When RANK = 1

Variable 1
CDS -0.98413
EQUITY 0.00770
Table 5.4
CDS Constant1 37.04224 7.89496 4.69 0.0001 1
AR1_1_1 -0.04774 0.01022 CDS (t-1)
AR1_1_2 -0.66698 0.14277 EQ (t-1)
AR2_1_1 0.41326 0.03833 10.78 0.0001 D_CDS (t-1)
AR2_1_2 -2.12302 0.30645 -6.93 0.0001 D_EQ (t-1)
EQ Constant2 -0.34684 1.32214 -0.26 0.7932 1
AR1_2_1 0.00037 0.00171 CDS (t-1)
AR1_2_2 0.00522 0.02391 EQ (t-1)
AR2_2_1 0.00818 0.00642 1.27 0.2034 D_CDS (t-1)
AR2_2_2 -0.13617 0.05132 -2.65 0.0083 D_EQ (t-1)
114
Table 5.5

1 2 83.30 <0.0001
2 2 1.55 0.2125
Test 1: Group 1 Variable: CDS

Group 2 Variable: EQ
Test 2: Group 1 Variable: EQ
Group 2 Variable: CDS
Table 5.6
CDS 0.3823 4.39872 66.68 < 0.0001
EQ 0.227 0.73664 2.50 0.0418
Table 5.7
Watson Chi Square
CDS 2.09803 185.35 < 0.0001 31.11 < 0.0001
EQ 2.01954 53.63 < 0.0001 0.44 0.5074
115
Appendix 10 – Before QUARTILE 1
CDS
STATIONARITY

Autocorrelations
0 57.622923 1.00000 | |********************| 0
1 57.557438 0.99886 | .|********************| 0.033131
2 57.479408 0.99751 | . |********************| 0.057342
3 57.381960 0.99582 | . |********************| 0.073977
4 57.266113 0.99381 | . |********************| 0.087462
5 57.137150 0.99157 | . |********************| 0.099085
6 56.997769 0.98915 | . |********************| 0.109437
7 56.852123 0.98662 | . |********************| 0.118846
8 56.705085 0.98407 | . |********************| 0.127521
9 56.548964 0.98136 | . |********************| 0.135601
10 56.387086 0.97855 | . |********************| 0.143185
11 56.216199 0.97559 | . |********************| 0.150346
12 56.038786 0.97251 | . |******************* | 0.157142
13 55.854393 0.96931 | . |******************* | 0.163615
14 55.664350 0.96601 | . |******************* | 0.169802
15 55.470270 0.96264 | . |******************* | 0.175731
16 55.275271 0.95926 | . |******************* | 0.181427
17 55.074719 0.95578 | . |******************* | 0.186911
18 54.870129 0.95223 | . |******************* | 0.192201
19 54.661886 0.94861 | . |******************* | 0.197312
116
Autocorrelations
20 54.445591 0.94486 | . |******************* | 0.202256
21 54.222330 0.94099 | . |******************* | 0.207045
22 53.995442 0.93705 | . |******************* | 0.211687
23 53.764131 0.93303 | . |******************* | 0.216192
24 53.530324 0.92898 | . |******************* | 0.220568

Zero Mean 0 -0.4562 0.5796 -1.18 0.2176
1 -0.4887 0.5725 -1.00 0.2832
2 -0.5708 0.5549 -0.89 0.3316
Single Mean 0 -1.0320 0.8832 -0.95 0.7733 0.86 0.8520
1 -1.3114 0.8557 -0.96 0.7705 0.71 0.8900
2 -1.9141 0.7888 -1.06 0.7339 0.71 0.8898
Trend 0 2.3518 0.9999 0.87 0.9999 1.39 0.9002
1 -0.6147 0.9923 -0.18 0.9934 0.48 0.9900
2 -6.6002 0.6959 -1.41 0.8564 1.15 0.9467
117
Autocorrelations
0 0.075135 1.00000 | |********************| 0
1 0.016387 0.21810 | .|**** | 0.033150
2 0.022157 0.29490 | .|****** | 0.034691
3 0.016543 0.22017 | .|**** | 0.037344
4 0.012432 0.16547 | . |*** | 0.038744
5 0.0090601 0.12058 | . |** | 0.039513
6 0.0068730 0.09148 | . |** | 0.039916
7 0.00075800 0.01009 | .|. | 0.040145
8 0.0072796 0.09689 | . |** | 0.040148
9 0.0034725 0.04622 | . |*. | 0.040404
10 0.0072617 0.09665 | . |** | 0.040462
11 0.0067836 0.09029 | . |** | 0.040715
12 0.0027813 0.03702 | . |*. | 0.040935
13 0.0026112 0.03475 | . |*. | 0.040971
14 0.0043619 0.05805 | . |*. | 0.041004
15 -0.0011480 -.01528 | .|. | 0.041094
16 0.0018474 0.02459 | .|. | 0.041100
17 0.0028234 0.03758 | . |*. | 0.041116
18 0.0012360 0.01645 | .|. | 0.041154
19 0.0021596 0.02874 | . |*. | 0.041161
20 0.0039780 0.05295 | . |*. | 0.041183
21 0.00068264 0.00909 | .|. | 0.041258
22 0.0034520 0.04594 | . |*. | 0.041260
23 -0.0003352 -.00446 | .|. | 0.041317
118
Autocorrelations
24 0.0023984 0.03192 | . |*. | 0.041317

Zero Mean 0 -702.491 0.0001 -23.46 <.0001
1 -403.927 0.0001 -13.90 <.0001
2 -291.961 0.0001 -10.96 <.0001
Single Mean 0 -703.001 0.0001 -23.47 <.0001 275.33 0.0010
1 -404.502 0.0001 -13.90 <.0001 96.66 0.0010
2 -292.583 0.0001 -10.97 <.0001 60.16 0.0010
Trend 0 -704.721 0.0001 -23.48 <.0001 275.76 0.0010
1 -405.968 0.0001 -13.90 <.0001 96.72 0.0010
2 -293.989 0.0001 -10.97 <.0001 60.21 0.0010
119
EQUITY
STATIONARITY

Autocorrelations
0 36.707337 1.00000 | |********************| 0
1 36.542282 0.99550 | .|********************| 0.033131
2 36.387543 0.99129 | . |********************| 0.057214
3 36.241705 0.98732 | . |********************| 0.073693
4 36.105953 0.98362 | . |********************| 0.087010
5 35.952470 0.97944 | . |********************| 0.098462
6 35.802976 0.97536 | . |********************| 0.108632
7 35.667137 0.97166 | . |******************* | 0.117853
8 35.526874 0.96784 | . |******************* | 0.126341
9 35.399237 0.96436 | . |******************* | 0.134233
10 35.261981 0.96062 | . |******************* | 0.141634
11 35.109832 0.95648 | . |******************* | 0.148614
12 34.958443 0.95236 | . |******************* | 0.155224
13 34.789330 0.94775 | . |******************* | 0.161511
14 34.628966 0.94338 | . |******************* | 0.167504
15 34.458199 0.93873 | . |******************* | 0.173238
16 34.290732 0.93417 | . |******************* | 0.178735
17 34.127654 0.92972 | . |******************* | 0.184016
18 33.963641 0.92525 | . |******************* | 0.189102
19 33.790426 0.92054 | . |****************** | 0.194008
20 33.622796 0.91597 | . |****************** | 0.198745
21 33.470163 0.91181 | . |****************** | 0.203326
120
Autocorrelations
22 33.323339 0.90781 | . |****************** | 0.207766
23 33.163778 0.90346 | . |****************** | 0.212075
24 33.001275 0.89904 | . |****************** | 0.216259

Zero Mean 0 0.4782 0.8016 2.27 0.9948
1 0.4723 0.8001 2.30 0.9952
2 0.4725 0.8002 2.43 0.9966
Single Mean 0 0.2132 0.9671 0.14 0.9689 2.59 0.4057
1 0.3387 0.9719 0.23 0.9747 2.64 0.3924
2 0.4447 0.9756 0.32 0.9795 2.94 0.3168
Trend 0 -15.8071 0.1577 -2.80 0.1967 4.34 0.3018
1 -15.5360 0.1660 -2.80 0.1993 4.41 0.2886
2 -14.1766 0.2136 -2.67 0.2504 4.12 0.3475
121
Autocorrelations
0 0.088600 1.00000 | |********************| 0
1 -0.0023829 -.02689 | *|. | 0.033150
2 -0.0048581 -.05483 | *|. | 0.033174
3 0.0026914 0.03038 | .|* | 0.033273
4 -0.0017999 -.02031 | .|. | 0.033304
5 -0.0021442 -.02420 | .|. | 0.033317
6 -0.0045221 -.05104 | *|. | 0.033336
7 -0.0022781 -.02571 | *|. | 0.033422
8 -0.0010374 -.01171 | .|. | 0.033444
9 -0.0029780 -.03361 | *|. | 0.033448
10 0.0016653 0.01880 | .|. | 0.033486
11 0.00072911 0.00823 | .|. | 0.033497
12 0.00066351 0.00749 | .|. | 0.033499
13 -0.0029670 -.03349 | *|. | 0.033501
14 -0.0013188 -.01489 | .|. | 0.033538
15 -0.0002638 -.00298 | .|. | 0.033545
16 -0.0028332 -.03198 | *|. | 0.033546
17 -0.0015079 -.01702 | .|. | 0.033579
18 0.0025829 0.02915 | .|* | 0.033588
19 -0.0023909 -.02699 | *|. | 0.033616
20 0.00017487 0.00197 | .|. | 0.033640
21 0.00004099 0.00046 | .|. | 0.033640
22 0.00099962 0.01128 | .|. | 0.033640
23 0.0018744 0.02116 | .|. | 0.033644
122
Autocorrelations
24 0.0025673 0.02898 | .|* | 0.033659

Zero Mean 0 -928.388 0.0001 -30.78 <.0001
1 -1024.96 0.0001 -22.58 <.0001
2 -923.042 0.0001 -17.33 <.0001
Single Mean 0 -933.489 0.0001 -30.93 <.0001 478.49 0.0010
1 -1042.89 0.0001 -22.77 <.0001 259.23 0.0010
2 -955.804 0.0001 -17.53 <.0001 153.66 0.0010
Trend 0 -934.328 0.0001 -30.95 <.0001 478.98 0.0010
1 -1045.89 0.0001 -22.79 <.0001 259.81 0.0010
2 -960.946 0.0001 -17.56 <.0001 154.19 0.0010
123
MODEL
CO-INTEGRATION

integration.
0 0 0.0028 3.2791 15.34
1 1 0.0008 0.7206 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.13462 0.03196 4.21 0.0001 CDS (t-1)
AR1_1_2 -0.11663 0.02795 -4.17 0.0001 EQ (t-1)
AR2_1_1 0.26608 0.03166 8.4 0.0001 CDS (t-2)
AR2_1_2 -0.18489 0.02816 -6.57 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.02394 0.00993 2.41 0.0162 1
AR1_2_1 -0.04781 0.03802 -1.26 0.2089 CDS (t-1)
AR1_2_2 -0.02934 0.03324 -0.88 0.3778 EQ (t-1)
AR2_2_1 0.03802 0.03766 1.01 0.3131 CDS (t-2)
AR2_2_2 -0.06026 0.0335 -1.8 0.0724 EQ (t-2)
Table 3.3

1 2 58.79 <.0001
2 2 2.14 0.3422

124
Table 3.4
CDS 1diff 0.1696 0.25023 46.12 <.0001
EQ 1diff 0.0062 0.29767 1.41 0.2291
Table 3.5
Watson Chi Square
CDS 1diff 2.02082 2566.59 <.0001 76.09 <.0001
EQ 1diff 1.99746 361.87 <.0001 6.41 0.0115
125
CDS
STATIONARITY

Autocorrelations
0 58.131649 1.00000 | |********************| 0
1 57.992438 0.99761 | .|********************| 0.033131
2 57.787800 0.99408 | . |********************| 0.057294
3 57.514645 0.98939 | . |********************| 0.073838
4 57.215964 0.98425 | . |********************| 0.087184
5 56.900067 0.97881 | . |********************| 0.098630
6 56.576019 0.97324 | . |******************* | 0.108771
7 56.251496 0.96766 | . |******************* | 0.117944
8 55.935505 0.96222 | . |******************* | 0.126358
9 55.632577 0.95701 | . |******************* | 0.134160
10 55.320910 0.95165 | . |******************* | 0.141456
11 55.012577 0.94634 | . |******************* | 0.148317
12 54.688307 0.94077 | . |******************* | 0.154803
13 54.366800 0.93524 | . |******************* | 0.160957
14 54.044530 0.92969 | . |******************* | 0.166815
15 53.734658 0.92436 | . |****************** | 0.172409
16 53.434546 0.91920 | . |****************** | 0.177766
17 53.140912 0.91415 | . |****************** | 0.182909
18 52.860290 0.90932 | . |****************** | 0.187857
19 52.582182 0.90454 | . |****************** | 0.192628
126
Autocorrelations
20 52.295847 0.89961 | . |****************** | 0.197235
21 52.008974 0.89468 | . |****************** | 0.201689
22 51.721435 0.88973 | . |****************** | 0.205999
23 51.438857 0.88487 | . |****************** | 0.210175
24 51.166272 0.88018 | . |****************** | 0.214226

Zero Mean 0 -0.1199 0.6556 -0.25 0.5980
1 -0.2172 0.6335 -0.35 0.5578
2 -0.3277 0.6084 -0.42 0.5316
Single Mean 0 -2.0490 0.7728 -1.01 0.7498 0.51 0.9494
1 -3.3038 0.6199 -1.29 0.6368 0.83 0.8580
2 -5.2888 0.4080 -1.62 0.4707 1.32 0.7336
Trend 0 -4.1046 0.8802 -0.97 0.9459 0.67 0.9900
1 -10.2519 0.4185 -1.89 0.6619 1.88 0.8009
2 -22.2219 0.0433 -3.10 0.1078 4.82 0.2063
127
Autocorrelations
0 0.261871 1.00000 | |********************| 0
1 0.058481 0.22332 | .|**** | 0.033150
2 0.069177 0.26416 | .|***** | 0.034764
3 0.029750 0.11361 | .|** | 0.036904
4 0.018803 0.07180 | .|* | 0.037286
5 0.0095151 0.03633 | .|* | 0.037438
6 -0.0031061 -.01186 | .|. | 0.037476
7 -0.0046284 -.01767 | .|. | 0.037480
8 -0.0067546 -.02579 | *|. | 0.037490
9 0.0096702 0.03693 | . |*. | 0.037509
10 0.0063721 0.02433 | .|. | 0.037549
11 0.016801 0.06416 | . |*. | 0.037566
12 -0.0020002 -.00764 | .|. | 0.037687
13 0.0021105 0.00806 | .|. | 0.037688
14 -0.011624 -.04439 | .*| . | 0.037690
15 -0.0099650 -.03805 | .*| . | 0.037748
16 -0.0072730 -.02777 | .*| . | 0.037790
17 -0.012749 -.04868 | .*| . | 0.037812
18 -0.0035827 -.01368 | .|. | 0.037881
19 0.0059590 0.02276 | .|. | 0.037886
20 -0.0015970 -.00610 | .|. | 0.037901
21 0.0023505 0.00898 | .|. | 0.037902
22 -0.0025057 -.00957 | .|. | 0.037905
23 -0.010944 -.04179 | .*| . | 0.037907
128
Autocorrelations
24 -0.0051311 -.01959 | .|. | 0.037958

Zero Mean 0 -701.815 0.0001 -23.64 <.0001
1 -437.399 0.0001 -14.57 <.0001
2 -421.757 0.0001 -12.91 <.0001
Single Mean 0 -701.809 0.0001 -23.63 <.0001 279.09 0.0010
1 -437.391 0.0001 -14.57 <.0001 106.08 0.0010
2 -421.738 0.0001 -12.90 <.0001 83.26 0.0010
Trend 0 -702.198 0.0001 -23.62 <.0001 278.93 0.0010
1 -437.682 0.0001 -14.55 <.0001 105.98 0.0010
2 -422.257 0.0001 -12.90 <.0001 83.21 0.0010
129
EQUITY
STATIONARITY

Autocorrelations
0 27.489382 1.00000 | |********************| 0
1 27.367784 0.99558 | .|********************| 0.033131
2 27.249910 0.99129 | . |********************| 0.057216
3 27.137271 0.98719 | . |********************| 0.073695
4 27.028225 0.98322 | . |********************| 0.087009
5 26.910082 0.97893 | . |********************| 0.098452
6 26.796934 0.97481 | . |******************* | 0.108613
7 26.688956 0.97088 | . |******************* | 0.117826
8 26.576082 0.96678 | . |******************* | 0.126302
9 26.475172 0.96311 | . |******************* | 0.134180
10 26.367517 0.95919 | . |******************* | 0.141565
11 26.242506 0.95464 | . |******************* | 0.148528
12 26.114239 0.94998 | . |******************* | 0.155117
13 25.977882 0.94502 | . |******************* | 0.161377
14 25.847144 0.94026 | . |******************* | 0.167341
15 25.711479 0.93532 | . |******************* | 0.173043
16 25.574365 0.93034 | . |******************* | 0.178506
17 25.437217 0.92535 | . |******************* | 0.183752
18 25.300721 0.92038 | . |****************** | 0.188798
19 25.154705 0.91507 | . |****************** | 0.193660
20 25.016231 0.91003 | . |****************** | 0.198350
21 24.884236 0.90523 | . |****************** | 0.202881
130
Autocorrelations
22 24.754464 0.90051 | . |****************** | 0.207267
23 24.617382 0.89552 | . |****************** | 0.211518
24 24.474929 0.89034 | . |****************** | 0.215640

Zero Mean 0 0.3578 0.7706 1.59 0.9730
1 0.3550 0.7699 1.56 0.9716
2 0.3559 0.7701 1.62 0.9750
Single Mean 0 -1.3383 0.8530 -0.74 0.8357 1.70 0.6348
1 -1.3286 0.8540 -0.72 0.8386 1.65 0.6479
2 -1.2182 0.8652 -0.69 0.8477 1.72 0.6300
Trend 0 -20.7731 0.0586 -3.26 0.0738 5.33 0.1010
1 -21.5196 0.0502 -3.30 0.0666 5.48 0.0924
2 -20.4307 0.0629 -3.20 0.0851 5.15 0.1390
131
Autocorrelations
0 0.099690 1.00000 | |********************| 0
1 0.00051774 0.00519 | .|. | 0.033150
2 -0.0037019 -.03713 | *|. | 0.033151
3 0.0046007 0.04615 | .|* | 0.033196
4 -0.0044189 -.04433 | *|. | 0.033267
5 -0.0029831 -.02992 | *|. | 0.033332
6 -0.0023941 -.02402 | .|. | 0.033361
7 -0.0025457 -.02554 | *|. | 0.033380
8 -0.0039311 -.03943 | *|. | 0.033401
9 -0.0028841 -.02893 | *|. | 0.033453
10 0.0052822 0.05299 | .|* | 0.033480
11 0.0014320 0.01436 | .|. | 0.033572
12 -0.0031026 -.03112 | *|. | 0.033579
13 -0.0004311 -.00432 | .|. | 0.033611
14 -0.0028909 -.02900 | *|. | 0.033611
15 -0.0000414 -.00042 | .|. | 0.033639
16 0.0029406 0.02950 | .|* | 0.033639
17 -0.0013610 -.01365 | .|. | 0.033667
18 0.0025747 0.02583 | .|* | 0.033673
19 -0.0044295 -.04443 | *|. | 0.033695
20 0.00080494 0.00807 | .|. | 0.033759
21 0.0013911 0.01395 | .|. | 0.033761
22 -0.0000714 -.00072 | .|. | 0.033768
23 0.0031187 0.03128 | .|* | 0.033768
24 0.0016737 0.01679 | .|. | 0.033800
132
Zero Mean 0 -901.514 0.0001 -29.87 <.0001
1 -964.219 0.0001 -21.91 <.0001
2 -828.720 0.0001 -16.75 <.0001
Single Mean 0 -904.273 0.0001 -29.94 <.0001 448.26 0.0010
1 -973.142 0.0001 -22.00 <.0001 241.99 0.0010
2 -843.319 0.0001 -16.84 <.0001 141.86 0.0010
Trend 0 -904.301 0.0001 -29.93 <.0001 447.81 0.0010
1 -973.225 0.0001 -21.99 <.0001 241.76 0.0010
2 -843.355 0.0001 -16.84 <.0001 141.72 0.0010
133
MODEL
CO-INTEGRATION

integration.
0 0 0.0064 6.2109 15.34
1 1 0.0004 0.4086 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.12751 0.03212 3.97 0.0001 CDS (t-1)
AR1_1_2 -0.29224 0.04941 -5.92 0.0001 EQ (t-1)
AR2_1_1 0.21824 0.03151 6.93 0.0001 CDS (t-2)
AR2_1_2 -0.30546 0.0503 -6.07 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.01842 0.01052 1.75 0.0803 1
AR1_2_1 -0.04149 0.02166 -1.92 0.0557 CDS (t-1)
AR1_2_2 0.0019 0.03332 0.06 0.9546 EQ (t-1)
AR2_2_1 0.01945 0.02125 0.92 0.3603 CDS (t-2)
AR2_2_2 -0.04827 0.03392 -1.42 0.1551 EQ (t-2)
Table 3.3

1 2 71.02 <.0001
2 2 3.94 0.1392

134
Table 3.4
CDS 1diff 0.1662 0.46859 45 <.0001
EQ 1diff 0.0058 0.31602 1.31 0.2659
Table 3.5
Watson Chi Square
CDS 1diff 1.97433 2299.12 <.0001 56.54 <.0001
EQ 1diff 1.99629 156.57 <.0001 5.5 0.0192
135
CDS
STATIONARITY

Autocorrelations
0 187.833 1.00000 | |********************| 0
1 186.489 0.99285 | .|********************| 0.033131
2 184.379 0.98161 | . |********************| 0.057112
3 181.838 0.96808 | . |******************* | 0.073329
4 179.235 0.95423 | . |******************* | 0.086224
5 176.565 0.94001 | . |******************* | 0.097127
6 173.806 0.92532 | . |******************* | 0.106647
7 170.976 0.91026 | . |****************** | 0.115123
8 168.148 0.89520 | . |****************** | 0.122769
9 165.524 0.88123 | . |****************** | 0.129737
10 162.848 0.86699 | . |***************** | 0.136149
11 160.437 0.85415 | . |***************** | 0.142080
12 158.003 0.84119 | . |***************** | 0.147609
13 155.693 0.82889 | . |***************** | 0.152781
14 153.514 0.81729 | . |**************** | 0.157640
15 151.465 0.80638 | . |**************** | 0.162224
16 149.640 0.79666 | . |**************** | 0.166566
17 147.969 0.78777 | . |**************** | 0.170697
18 146.349 0.77914 | . |**************** | 0.174643
19 144.639 0.77004 | . |*************** | 0.178417
136
Autocorrelations
20 142.791 0.76020 | . |*************** | 0.182029
21 140.801 0.74961 | . |*************** | 0.185481
22 138.809 0.73900 | . |*************** | 0.188777
23 136.880 0.72873 | . |*************** | 0.191927
24 134.992 0.71868 | . |************** | 0.194940

Zero Mean 0 0.3170 0.7601 0.55 0.8338
1 0.0415 0.6926 0.05 0.6985
2 -0.1309 0.6531 -0.13 0.6399
Single Mean 0 -0.7244 0.9101 -0.28 0.9252 0.23 0.9900
1 -5.4322 0.3950 -1.41 0.5792 1.06 0.7986
2 -8.9930 0.1712 -1.94 0.3152 1.92 0.5777
Trend 0 4.2921 0.9999 1.32 0.9999 3.22 0.5290
1 -4.1014 0.8804 -0.83 0.9612 1.08 0.9561
2 -11.1589 0.3615 -1.83 0.6909 2.01 0.7736
137
Autocorrelations
0 1.362111 1.00000 | |********************| 0
1 0.470926 0.34573 | .|******* | 0.033150
2 0.343909 0.25248 | .|***** | 0.036900
3 0.197703 0.14514 | . |*** | 0.038752
4 0.028154 0.02067 | .|. | 0.039345
5 0.099751 0.07323 | . |*. | 0.039357
6 0.023601 0.01733 | .|. | 0.039506
7 -0.021668 -.01591 | .|. | 0.039515
8 0.053119 0.03900 | . |*. | 0.039522
9 0.024140 0.01772 | .|. | 0.039564
10 0.126122 0.09259 | . |** | 0.039573
11 0.164670 0.12089 | . |** | 0.039810
12 0.072995 0.05359 | . |*. | 0.040211
13 -0.033927 -.02491 | .|. | 0.040290
14 -0.030500 -.02239 | .|. | 0.040307
15 -0.115883 -.08508 | **| . | 0.040320
16 -0.029198 -.02144 | .|. | 0.040517
17 -0.014600 -.01072 | .|. | 0.040530
18 0.068583 0.05035 | . |*. | 0.040533
19 0.106752 0.07837 | . |** | 0.040601
20 0.077583 0.05696 | . |*. | 0.040767
21 0.110918 0.08143 | . |** | 0.040855
22 0.041552 0.03051 | . |*. | 0.041033
23 -0.053038 -.03894 | .*| . | 0.041057
138
Autocorrelations
24 -0.0083713 -.00615 | .|. | 0.041098

Zero Mean 0 -573.763 0.0001 -19.76 <.0001
1 -410.687 0.0001 -13.66 <.0001
2 -403.518 0.0001 -12.26 <.0001
Single Mean 0 -574.088 0.0001 -19.75 <.0001 195.02 0.0010
1 -411.143 0.0001 -13.65 <.0001 93.24 0.0010
2 -404.063 0.0001 -12.25 <.0001 75.09 0.0010
Trend 0 -577.236 0.0001 -19.78 <.0001 195.83 0.0010
1 -414.594 0.0001 -13.66 <.0001 93.52 0.0010
2 -409.103 0.0001 -12.27 <.0001 75.42 0.0010
139
EQUITY
STATIONARITY

Autocorrelations
0 24.868061 1.00000 | |********************| 0
1 24.776822 0.99633 | .|********************| 0.033131
2 24.688969 0.99280 | . |********************| 0.057245
3 24.606202 0.98947 | . |********************| 0.073762
4 24.529055 0.98637 | . |********************| 0.087122
5 24.442425 0.98288 | . |********************| 0.098622
6 24.358196 0.97950 | . |********************| 0.108844
7 24.277099 0.97624 | . |********************| 0.118125
8 24.195330 0.97295 | . |******************* | 0.126672
9 24.119303 0.96989 | . |******************* | 0.134625
10 24.039717 0.96669 | . |******************* | 0.142088
11 23.948869 0.96304 | . |******************* | 0.149133
12 23.855602 0.95929 | . |******************* | 0.155810
13 23.751770 0.95511 | . |******************* | 0.162164
14 23.650381 0.95103 | . |******************* | 0.168225
15 23.544348 0.94677 | . |******************* | 0.174027
16 23.440252 0.94258 | . |******************* | 0.179592
17 23.335912 0.93839 | . |******************* | 0.184943
18 23.229661 0.93412 | . |******************* | 0.190097
19 23.115111 0.92951 | . |******************* | 0.195071
20 23.004149 0.92505 | . |******************* | 0.199874
21 22.898302 0.92079 | . |****************** | 0.204519
140
Autocorrelations
22 22.796213 0.91669 | . |****************** | 0.209020
23 22.683917 0.91217 | . |****************** | 0.213388
24 22.570019 0.90759 | . |****************** | 0.217626

Zero Mean 0 0.3149 0.7596 1.36 0.9565
1 0.3085 0.7580 1.31 0.9521
2 0.3104 0.7584 1.37 0.9580
Single Mean 0 -1.1488 0.8721 -0.64 0.8593 1.26 0.7495
1 -1.1466 0.8723 -0.63 0.8621 1.17 0.7705
2 -1.0164 0.8847 -0.58 0.8723 1.23 0.7549
Trend 0 -15.7683 0.1588 -2.92 0.1574 4.32 0.3074
1 -16.7532 0.1315 -3.01 0.1293 4.61 0.2469
2 -15.6324 0.1630 -2.91 0.1612 4.30 0.3107
141
Autocorrelations
0 0.088051 1.00000 | |********************| 0
1 0.0013819 0.01569 | .|. | 0.033150
2 -0.0039912 -.04533 | *|. | 0.033158
3 0.0010748 0.01221 | .|. | 0.033226
4 -0.0005784 -.00657 | .|. | 0.033231
5 -0.0019226 -.02183 | .|. | 0.033232
6 -0.0025676 -.02916 | *|. | 0.033248
7 -0.0029907 -.03397 | *|. | 0.033276
8 -0.0010915 -.01240 | .|. | 0.033314
9 -0.0023782 -.02701 | *|. | 0.033319
10 0.0013283 0.01509 | .|. | 0.033343
11 0.0018369 0.02086 | .|. | 0.033351
12 0.0011156 0.01267 | .|. | 0.033365
13 0.00009915 0.00113 | .|. | 0.033370
14 -0.0022652 -.02573 | *|. | 0.033370
15 -0.0025901 -.02942 | *|. | 0.033392
16 0.00028505 0.00324 | .|. | 0.033421
17 -0.0004956 -.00563 | .|. | 0.033421
18 0.0027859 0.03164 | .|* | 0.033422
19 -0.0013389 -.01521 | .|. | 0.033455
20 0.00082030 0.00932 | .|. | 0.033463
21 -0.0005683 -.00645 | .|. | 0.033465
22 0.0018532 0.02105 | .|. | 0.033467
23 0.00011966 0.00136 | .|. | 0.033481
142
Autocorrelations
24 0.0020129 0.02286 | .|. | 0.033481

Zero Mean 0 -892.739 0.0001 -29.58 <.0001
1 -972.858 0.0001 -22.00 <.0001
2 -925.739 0.0001 -17.39 <.0001
Single Mean 0 -894.705 0.0001 -29.63 <.0001 438.86 0.0010
1 -979.265 0.0001 -22.06 <.0001 243.38 0.0010
2 -937.757 0.0001 -17.46 <.0001 152.35 0.0010
Trend 0 -894.808 0.0001 -29.61 <.0001 438.52 0.0010
1 -979.593 0.0001 -22.06 <.0001 243.23 0.0010
2 -938.228 0.0001 -17.45 <.0001 152.29 0.0010
143
MODEL
CO-INTEGRATION

integration.
0 0 0.0066 6.7961 15.34
1 1 0.0009 0.8238 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.24936 0.03372 7.4 0.0001 CDS (t-1)
AR1_1_2 -0.86163 0.11722 -7.35 0.0001 EQ (t-1)
AR2_1_1 0.15576 0.03264 4.77 0.0001 CDS (t-2)
AR2_1_2 -0.49192 0.12065 -4.08 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.01553 0.00988 1.57 0.1165 1
AR1_2_1 -0.01922 0.00963 -2 0.0462 CDS (t-1)
AR1_2_2 0.0073 0.03347 0.22 0.8274 EQ (t-1)
AR2_2_1 -0.00057 0.00932 -0.06 0.951 CDS (t-2)
AR2_2_2 -0.06527 0.03445 -1.89 0.0585 EQ (t-2)
Table 3.3

1 2 69.48 <.0001
2 2 4.55 0.1029

144
Table 3.4
CDS 1diff 0.2092 1.03897 59.72 <.0001
EQ 1diff 0.0073 0.29668 1.67 0.1555
Table 3.5
Watson Chi Square
CDS 1diff 1.91223 9999.99 <.0001 77.72 <.0001
EQ 1diff 1.99806 205.59 <.0001 4.47 0.0348
145
CDS
STATIONARITY

Autocorrelations
0 664.790 1.00000 | |********************| 0
1 657.743 0.98940 | .|********************| 0.033131
2 647.721 0.97432 | . |******************* | 0.056981
3 635.909 0.95656 | . |******************* | 0.073013
4 623.923 0.93853 | . |******************* | 0.085672
5 611.425 0.91973 | . |****************** | 0.096299
6 598.505 0.90029 | . |****************** | 0.105501
7 585.226 0.88032 | . |****************** | 0.113622
8 571.245 0.85929 | . |***************** | 0.120877
9 558.670 0.84037 | . |***************** | 0.127406
10 546.172 0.82157 | . |**************** | 0.133352
11 534.967 0.80472 | . |**************** | 0.138797
12 524.229 0.78856 | . |**************** | 0.143827
13 514.428 0.77382 | . |*************** | 0.148497
14 504.733 0.75924 | . |*************** | 0.152859
15 495.680 0.74562 | . |*************** | 0.156944
16 487.128 0.73276 | . |*************** | 0.160786
17 479.104 0.72069 | . |************** | 0.164410
18 471.448 0.70917 | . |************** | 0.167842
19 463.201 0.69676 | . |************** | 0.171100
146
Autocorrelations
20 454.589 0.68381 | . |************** | 0.174187
21 445.600 0.67029 | . |************* | 0.177109
22 437.099 0.65750 | . |************* | 0.179872
23 429.269 0.64572 | . |************* | 0.182491
24 421.268 0.63369 | . |************* | 0.184982

Zero Mean 0 0.6141 0.8353 1.18 0.9397
1 0.4947 0.8058 0.75 0.8764
2 0.3758 0.7753 0.47 0.8172
Single Mean 0 -0.9251 0.8930 -0.30 0.9231 0.82 0.8605
1 -4.5370 0.4813 -1.13 0.7047 1.10 0.7904
2 -9.1416 0.1653 -1.86 0.3512 2.04 0.5469
Trend 0 -0.9157 0.9893 -0.29 0.9908 0.67 0.9900
1 -4.4972 0.8553 -1.12 0.9231 0.94 0.9753
2 -9.0824 0.5009 -1.85 0.6799 1.84 0.8098
147
Autocorrelations
0 7.079433 1.00000 | |********************| 0
1 1.548419 0.21872 | .|**** | 0.033150
2 1.505458 0.21265 | .|**** | 0.034699
3 0.837773 0.11834 | .|** | 0.036103
4 0.660591 0.09331 | .|** | 0.036527
5 0.555856 0.07852 | .|** | 0.036788
6 0.627592 0.08865 | .|** | 0.036972
7 -0.119124 -.01683 | .|. | 0.037204
8 0.0085693 0.00121 | .|. | 0.037213
9 0.0065113 0.00092 | .|. | 0.037213
10 0.145513 0.02055 | .|. | 0.037213
11 0.348424 0.04922 | .|* | 0.037225
12 0.352045 0.04973 | .|* | 0.037297
13 0.063171 0.00892 | .|. | 0.037369
14 0.101319 0.01431 | .|. | 0.037372
15 -0.325409 -.04597 | *|. | 0.037378
16 0.168053 0.02374 | .|. | 0.037440
17 -0.039499 -.00558 | .|. | 0.037456
18 0.412688 0.05829 | .|* | 0.037457
19 0.289293 0.04086 | . |*. | 0.037557
20 0.227836 0.03218 | . |*. | 0.037606
21 0.255123 0.03604 | . |*. | 0.037636
22 0.137029 0.01936 | .|. | 0.037674
23 0.071082 0.01004 | .|. | 0.037685
148
Autocorrelations
24 0.086056 0.01216 | .|. | 0.037688

Zero Mean 0 -699.779 0.0001 -23.30 <.0001
1 -483.618 0.0001 -15.14 <.0001
2 -435.221 0.0001 -12.94 <.0001
Single Mean 0 -701.192 0.0001 -23.32 <.0001 271.84 0.0010
1 -485.674 0.0001 -15.15 <.0001 114.83 0.0010
2 -437.862 0.0001 -12.96 <.0001 84.02 0.0010
Trend 0 -702.374 0.0001 -23.32 <.0001 272.01 0.0010
1 -486.998 0.0001 -15.15 <.0001 114.84 0.0010
2 -439.453 0.0001 -12.96 <.0001 84.04 0.0010
149
EQUITY
STATIONARITY

Autocorrelations
0 22.997601 1.00000 | |********************| 0
1 22.879387 0.99486 | .|********************| 0.033131
2 22.768922 0.99006 | . |********************| 0.057189
3 22.666372 0.98560 | . |********************| 0.073638
4 22.569606 0.98139 | . |********************| 0.086920
5 22.464574 0.97682 | . |********************| 0.098334
6 22.359414 0.97225 | . |******************* | 0.108464
7 22.267532 0.96825 | . |******************* | 0.117642
8 22.168624 0.96395 | . |******************* | 0.126087
9 22.076954 0.95997 | . |******************* | 0.133932
10 21.983409 0.95590 | . |******************* | 0.141283
11 21.876005 0.95123 | . |******************* | 0.148213
12 21.768203 0.94654 | . |******************* | 0.154769
13 21.654798 0.94161 | . |******************* | 0.160998
14 21.547115 0.93693 | . |******************* | 0.166934
15 21.435233 0.93206 | . |******************* | 0.172610
16 21.327738 0.92739 | . |******************* | 0.178049
17 21.222213 0.92280 | . |****************** | 0.183274
18 21.115260 0.91815 | . |****************** | 0.188305
19 20.997159 0.91302 | . |****************** | 0.193157
20 20.883466 0.90807 | . |****************** | 0.197838
21 20.779830 0.90357 | . |****************** | 0.202361
150
Autocorrelations
22 20.678419 0.89916 | . |****************** | 0.206742
23 20.572181 0.89454 | . |****************** | 0.210991
24 20.461649 0.88973 | . |****************** | 0.215114

Zero Mean 0 0.2683 0.7477 1.19 0.9406
1 0.2598 0.7455 1.15 0.9363
2 0.2593 0.7454 1.20 0.9415
Single Mean 0 -3.0120 0.6552 -1.36 0.6040 1.82 0.6049
1 -2.8640 0.6733 -1.29 0.6371 1.66 0.6443
2 -2.6504 0.6996 -1.24 0.6583 1.66 0.6452
Trend 0 -30.9224 0.0064 -3.90 0.0124 7.66 0.0142
1 -32.0866 0.0049 -3.94 0.0110 7.79 0.0114
2 -30.3798 0.0072 -3.79 0.0174 7.22 0.0237
151
Autocorrelations
0 0.123939 1.00000 | |********************| 0
1 0.00004643 0.00037 | .|. | 0.033150
2 -0.0053003 -.04277 | *|. | 0.033150
3 0.0027917 0.02252 | .|. | 0.033210
4 -0.0030114 -.02430 | .|. | 0.033227
5 -0.0008024 -.00647 | .|. | 0.033247
6 -0.0086840 -.07007 | *|. | 0.033248
7 0.00035273 0.00285 | .|. | 0.033410
8 -0.0014019 -.01131 | .|. | 0.033410
9 -0.0034759 -.02805 | *|. | 0.033414
10 0.0028205 0.02276 | .|. | 0.033440
11 0.0010877 0.00878 | .|. | 0.033457
12 -0.0019008 -.01534 | .|. | 0.033460
13 -0.0012112 -.00977 | .|. | 0.033467
14 -0.0019089 -.01540 | .|. | 0.033471
15 -0.0027362 -.02208 | .|. | 0.033478
16 -0.0005091 -.00411 | .|. | 0.033494
17 -0.0024396 -.01968 | .|. | 0.033495
18 0.0044506 0.03591 | .|* | 0.033508
19 -0.0038225 -.03084 | *|. | 0.033550
20 -0.0016914 -.01365 | .|. | 0.033581
21 0.0013734 0.01108 | .|. | 0.033587
22 -0.0016598 -.01339 | .|. | 0.033591
23 0.0024897 0.02009 | .|. | 0.033597
152
Autocorrelations
24 0.0024644 0.01988 | .|. | 0.033610

Zero Mean 0 -907.002 0.0001 -30.05 <.0001
1 -984.114 0.0001 -22.13 <.0001
2 -912.975 0.0001 -17.28 <.0001
Single Mean 0 -908.661 0.0001 -30.09 <.0001 452.80 0.0010
1 -989.504 0.0001 -22.18 <.0001 245.91 0.0010
2 -922.598 0.0001 -17.33 <.0001 150.17 0.0010
Trend 0 -908.746 0.0001 -30.08 <.0001 452.35 0.0010
1 -989.782 0.0001 -22.17 <.0001 245.67 0.0010
2 -923.171 0.0001 -17.32 <.0001 150.03 0.0010
153
MODEL
CO-INTEGRATION

integration.
0 0 0.0055 5.6597 15.34
1 1 0.0007 0.6602 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.14223 0.03349 4.25 0.0001 CDS (t-1)
AR1_1_2 -1.30794 0.23853 -5.48 0.0001 EQ (t-1)
AR2_1_1 0.16223 0.03286 4.94 0.0001 CDS (t-2)
AR2_1_2 -0.92861 0.24212 -3.84 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.01916 0.01166 1.64 0.1008 1
AR1_2_1 -0.0078 0.00468 -1.66 0.0964 CDS (t-1)
AR1_2_2 -0.01506 0.03336 -0.45 0.6518 EQ (t-1)
AR2_2_1 -0.01471 0.0046 -3.2 0.0014 CDS (t-2)
AR2_2_2 -0.06957 0.03386 -2.05 0.0402 EQ (t-2)
Table 3.3

1 2 43.43 <.0001
2 2 15.67 0.0004

154
Table 3.4
CDS 1diff 0.1218 2.50058 31.3 <.0001
EQ 1diff 0.0189 0.34972 4.34 0.0018
Table 3.5
Watson Chi Square
CDS 1diff 1.95258 9999.99 <.0001 5.89 0.0154
EQ 1diff 1.98163 169.23 <.0001 4.79 0.0288
155
Appendix 14 – After QUARTILE 1
CDS
STATIONARITY

Autocorrelations
0 720.785 1.00000 | |********************| 0
1 718.164 0.99636 | . |********************| 0.047782
2 714.584 0.99140 | . |********************| 0.082560
3 710.372 0.98555 | . |********************| 0.106321
4 705.841 0.97927 | . |********************| 0.125457
5 701.353 0.97304 | . |******************* | 0.141839
6 696.735 0.96663 | . |******************* | 0.156338
7 692.003 0.96007 | . |******************* | 0.169435
8 687.150 0.95334 | . |******************* | 0.181430
9 682.172 0.94643 | . |******************* | 0.192528
10 677.031 0.93930 | . |******************* | 0.202872
11 671.679 0.93187 | . |******************* | 0.212569
12 666.158 0.92421 | . |****************** | 0.221700
13 660.594 0.91649 | . |****************** | 0.230329
14 655.078 0.90884 | . |****************** | 0.238509
15 649.533 0.90115 | . |****************** | 0.246289
16 643.895 0.89333 | . |****************** | 0.253705
17 638.048 0.88521 | . |****************** | 0.260788
18 632.069 0.87692 | . |****************** | 0.267560
19 626.034 0.86854 | . |***************** | 0.274043
156
Autocorrelations
20 619.969 0.86013 | . |***************** | 0.280258
21 614.069 0.85194 | . |***************** | 0.286221
22 608.495 0.84421 | . |***************** | 0.291953
23 603.008 0.83660 | . |***************** | 0.297474
24 597.576 0.82906 | . |***************** | 0.302799

Zero Mean 0 0.4803 0.8017 0.89 0.9003
1 0.2754 0.7491 0.33 0.7805
2 0.1918 0.7282 0.21 0.7465
Single Mean 0 -1.2298 0.8638 -1.06 0.7319 1.79 0.6138
1 -2.1983 0.7544 -1.23 0.6631 1.28 0.7446
2 -2.5844 0.7071 -1.31 0.6290 1.27 0.7449
Trend 0 -1.3412 0.9834 -0.53 0.9821 0.56 0.9900
1 -5.7166 0.7654 -1.44 0.8476 1.25 0.9275
2 -7.4698 0.6238 -1.68 0.7612 1.59 0.8591
157
Autocorrelations
0 2.212085 1.00000 | |********************| 0
1 0.898375 0.40612 | . |******** | 0.047782
2 0.544709 0.24624 | . |***** | 0.055102
3 0.291384 0.13172 | . |*** | 0.057560
4 -0.011674 -.00528 | .|. | 0.058244
5 0.102065 0.04614 | . |*. | 0.058245
6 0.025170 0.01138 | .|. | 0.058328
7 0.063267 0.02860 | . |*. | 0.058333
8 0.026385 0.01193 | .|. | 0.058365
9 0.122850 0.05554 | . |*. | 0.058371
10 0.221626 0.10019 | . |** | 0.058491
11 0.145449 0.06575 | . |*. | 0.058882
12 -0.010334 -.00467 | .|. | 0.059049
13 -0.084148 -.03804 | .*| . | 0.059050
14 -0.040344 -.01824 | .|. | 0.059106
15 0.144908 0.06551 | . |*. | 0.059119
16 0.159527 0.07212 | . |*. | 0.059284
17 0.140160 0.06336 | . |*. | 0.059484
18 0.017475 0.00790 | .|. | 0.059638
19 0.010406 0.00470 | .|. | 0.059641
20 -0.165366 -.07476 | .*| . | 0.059641
21 -0.247999 -.11211 | **| . | 0.059855
22 -0.118002 -.05334 | .*| . | 0.060333
23 -0.072118 -.03260 | .*| . | 0.060440
158
Autocorrelations
24 0.117926 0.05331 | . |*. | 0.060480

Zero Mean 0 -258.006 0.0001 -13.52 <.0001
1 -210.437 0.0001 -10.23 <.0001
2 -207.368 0.0001 -9.10 <.0001
Single Mean 0 -259.448 0.0001 -13.56 <.0001 91.91 0.0010
1 -212.581 0.0001 -10.27 <.0001 52.71 0.0010
2 -210.603 0.0001 -9.15 <.0001 41.84 0.0010
Trend 0 -259.934 0.0001 -13.56 <.0001 91.99 0.0010
1 -213.279 0.0001 -10.28 <.0001 52.82 0.0010
2 -211.575 0.0001 -9.16 <.0001 41.97 0.0010
159
EQUITY
STATIONARITY

Autocorrelations
0 78.073690 1.00000 | |********************| 0
1 77.515844 0.99285 | . |********************| 0.047782
2 77.057624 0.98699 | . |********************| 0.082367
3 76.668905 0.98201 | . |********************| 0.105983
4 76.216812 0.97622 | . |********************| 0.125043
5 75.794785 0.97081 | . |******************* | 0.141377
6 75.383901 0.96555 | . |******************* | 0.155855
7 74.926866 0.95969 | . |******************* | 0.168961
8 74.468740 0.95383 | . |******************* | 0.180979
9 73.958577 0.94729 | . |******************* | 0.192114
10 73.439688 0.94065 | . |******************* | 0.202498
11 72.941584 0.93427 | . |******************* | 0.212239
12 72.406197 0.92741 | . |******************* | 0.221430
13 71.889793 0.92079 | . |****************** | 0.230127
14 71.303705 0.91329 | . |****************** | 0.238390
15 70.762894 0.90636 | . |****************** | 0.246249
16 70.257293 0.89988 | . |****************** | 0.253751
17 69.687850 0.89259 | . |****************** | 0.260936
18 69.077973 0.88478 | . |****************** | 0.267816
19 68.552085 0.87804 | . |****************** | 0.274408
20 68.000287 0.87098 | . |***************** | 0.280750
21 67.417485 0.86351 | . |***************** | 0.286852
160
Autocorrelations
22 66.886933 0.85672 | . |***************** | 0.292727
23 66.317129 0.84942 | . |***************** | 0.298397
24 65.742359 0.84206 | . |***************** | 0.303867

Zero Mean 0 -0.4768 0.5749 -1.28 0.1838
1 -0.4606 0.5784 -1.46 0.1355
2 -0.4505 0.5807 -1.64 0.0961
Single Mean 0 -1.4963 0.8358 -0.78 0.8247 0.97 0.8234
1 -0.9897 0.8869 -0.60 0.8673 1.12 0.7859
2 -0.6674 0.9144 -0.47 0.8947 1.35 0.7258
Trend 0 -12.5684 0.2818 -2.62 0.2717 3.47 0.4801
1 -9.4943 0.4685 -2.29 0.4399 2.67 0.6422
2 -7.4715 0.6237 -2.05 0.5743 2.16 0.7442
161
Autocorrelations
0 0.665186 1.00000 | |********************| 0
1 -0.108267 -.16276 | ***| . | 0.047782
2 -0.073244 -.11011 | **| . | 0.049031
3 0.068990 0.10372 | . |** | 0.049593
4 -0.0085352 -.01283 | .|. | 0.050085
5 -0.0055005 -.00827 | .|. | 0.050093
6 0.0089651 0.01348 | .|. | 0.050096
7 -0.019225 -.02890 | .*| . | 0.050104
8 0.057696 0.08674 | . |** | 0.050142
9 -0.024665 -.03708 | .*| . | 0.050484
10 0.015689 0.02359 | .|. | 0.050546
11 0.013558 0.02038 | .|. | 0.050571
12 -0.0021581 -.00324 | .|. | 0.050590
13 0.033582 0.05049 | . |*. | 0.050590
14 -0.026014 -.03911 | .*| . | 0.050705
15 -0.068073 -.10234 | **| . | 0.050774
16 0.049831 0.07491 | . |*. | 0.051243
17 0.049151 0.07389 | . |*. | 0.051492
18 -0.073022 -.10978 | **| . | 0.051734
19 0.012603 0.01895 | .|. | 0.052263
20 0.029424 0.04423 | . |*. | 0.052278
21 -0.059376 -.08926 | **| . | 0.052364
22 0.013100 0.01969 | .|. | 0.052710
23 0.024582 0.03696 | . |*. | 0.052727
162
Autocorrelations
24 -0.039572 -.05949 | .*| . | 0.052786

Zero Mean 0 -506.454 0.0001 -24.59 <.0001
1 -663.648 0.0001 -18.21 <.0001
2 -525.455 0.0001 -12.76 <.0001
Single Mean 0 -508.137 0.0001 -24.66 <.0001 303.94 0.0010
1 -672.839 0.0001 -18.31 <.0001 167.54 0.0010
2 -541.743 0.0001 -12.86 <.0001 82.72 0.0010
Trend 0 -508.193 0.0001 -24.63 <.0001 303.36 0.0010
1 -673.237 0.0001 -18.29 <.0001 167.27 0.0010
2 -542.666 0.0001 -12.85 <.0001 82.61 0.0010
163
MODEL
CO-INTEGRATION

integration.
0 0 0.0185 8.2601 15.34
1 1 0.0003 0.1347 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.28228 0.04771 5.92 0.0001 CDS (t-1)
AR1_1_2 -0.49543 0.07867 -6.3 0.0001 EQ (t-1)
AR2_1_1 0.14359 0.04609 3.12 0.002 CDS (t-2)
AR2_1_2 -0.30462 0.07997 -3.81 0.0002 EQ (t-2)
EQ 1 diff Constant2 -0.06266 0.03858 -1.62 0.1051 1
AR1_2_1 0.0242 0.02948 0.82 0.4122 CDS (t-1)
AR1_2_2 -0.18031 0.04861 -3.71 0.0002 EQ (t-1)
AR2_2_1 0.00023 0.02848 0.01 0.9937 CDS (t-2)
AR2_2_2 -0.1283 0.04942 -2.6 0.0097 EQ (t-2)
Table 3.3

1 2 46.52 <.0001
2 2 0.82 0.6635

164
Table 3.4
CDS 1diff 0.2536 1.29441 36.61 <.0001
EQ 1diff 0.0477 0.79985 5.4 0.0003
Table 3.5
Watson Chi Square
CDS 1diff 2.05309 1245.59 <.0001 7.76 0.0056
EQ 1diff 1.98008 66.74 <.0001 4.32 0.0382
165
Appendix 15 – After Quartile 2
CDS
STATIONARITY

Autocorrelations
0 2667.923 1.00000 | |********************| 0
1 2657.065 0.99593 | . |********************| 0.047782
2 2641.890 0.99024 | . |********************| 0.082536
3 2624.993 0.98391 | . |********************| 0.106253
4 2607.474 0.97734 | . |********************| 0.125340
5 2590.371 0.97093 | . |******************* | 0.141675
6 2573.173 0.96449 | . |******************* | 0.156130
7 2555.968 0.95804 | . |******************* | 0.169186
8 2537.808 0.95123 | . |******************* | 0.181149
9 2519.580 0.94440 | . |******************* | 0.192215
10 2501.020 0.93744 | . |******************* | 0.202532
11 2481.215 0.93002 | . |******************* | 0.212208
12 2460.674 0.92232 | . |****************** | 0.221318
13 2440.377 0.91471 | . |****************** | 0.229926
14 2420.496 0.90726 | . |****************** | 0.238089
15 2400.351 0.89971 | . |****************** | 0.245855
16 2379.280 0.89181 | . |****************** | 0.253261
17 2357.317 0.88358 | . |****************** | 0.260332
18 2334.808 0.87514 | . |****************** | 0.267091
19 2312.443 0.86676 | . |***************** | 0.273559
166
Autocorrelations
20 2290.088 0.85838 | . |***************** | 0.279759
21 2268.055 0.85012 | . |***************** | 0.285709
22 2246.979 0.84222 | . |***************** | 0.291427
23 2226.165 0.83442 | . |***************** | 0.296932
24 2205.505 0.82667 | . |***************** | 0.302238

Zero Mean 0 0.4968 0.8059 0.79 0.8835
1 0.2084 0.7323 0.21 0.7483
2 0.2469 0.7419 0.26 0.7621
Single Mean 0 -1.2933 0.8573 -1.01 0.7510 1.59 0.6641
1 -2.4729 0.7208 -1.24 0.6574 1.22 0.7602
2 -2.3387 0.7373 -1.22 0.6686 1.22 0.7580
Trend 0 -2.8158 0.9441 -0.93 0.9501 0.66 0.9900
1 -9.1173 0.4959 -1.93 0.6385 1.97 0.7830
2 -8.4823 0.5438 -1.83 0.6875 1.80 0.8170
167
Autocorrelations
0 10.046357 1.00000 | |********************| 0
1 4.106206 0.40873 | . |******** | 0.047782
2 1.347605 0.13414 | . |*** | 0.055190
3 0.314194 0.03127 | . |*. | 0.055929
4 -0.290336 -.02890 | .*| . | 0.055969
5 -0.182697 -.01819 | .|. | 0.056003
6 -0.387888 -.03861 | .*| . | 0.056017
7 0.625390 0.06225 | . |*. | 0.056077
8 -0.157582 -.01569 | .|. | 0.056235
9 0.435025 0.04330 | . |*. | 0.056245
10 1.348101 0.13419 | . |*** | 0.056321
11 0.294511 0.02932 | . |*. | 0.057046
12 -0.506123 -.05038 | .*| . | 0.057081
13 -0.751542 -.07481 | .*| . | 0.057182
14 -0.222091 -.02211 | .|. | 0.057405
15 0.644425 0.06415 | . |*. | 0.057425
16 0.610202 0.06074 | . |*. | 0.057588
17 0.546611 0.05441 | . |*. | 0.057734
18 -0.377655 -.03759 | .*| . | 0.057851
19 -0.249050 -.02479 | .|. | 0.057907
20 -0.373962 -.03722 | .*| . | 0.057931
21 -0.593893 -.05912 | .*| . | 0.057985
22 -0.227774 -.02267 | .|. | 0.058123
23 -0.065339 -.00650 | .|. | 0.058143
168
Autocorrelations
24 0.387716 0.03859 | . |*. | 0.058145

Zero Mean 0 -256.964 0.0001 -13.48 <.0001
1 -275.884 0.0001 -11.71 <.0001
2 -281.750 0.0001 -10.26 <.0001
Single Mean 0 -258.236 0.0001 -13.51 <.0001 91.30 0.0010
1 -278.509 0.0001 -11.75 <.0001 68.98 0.0010
2 -286.367 0.0001 -10.30 <.0001 53.08 0.0010
Trend 0 -258.483 0.0001 -13.51 <.0001 91.26 0.0010
1 -278.929 0.0001 -11.74 <.0001 68.97 0.0010
2 -287.021 0.0001 -10.30 <.0001 53.10 0.0010
169
EQUITY
STATIONARITY

Autocorrelations
0 71.238802 1.00000 | |********************| 0
1 70.760415 0.99328 | . |********************| 0.047782
2 70.363076 0.98771 | . |********************| 0.082390
3 70.003476 0.98266 | . |********************| 0.106032
4 69.598432 0.97697 | . |********************| 0.125108
5 69.220291 0.97167 | . |******************* | 0.141458
6 68.860132 0.96661 | . |******************* | 0.155954
7 68.462646 0.96103 | . |******************* | 0.169080
8 68.084195 0.95572 | . |******************* | 0.181122
9 67.648079 0.94960 | . |******************* | 0.192291
10 67.179778 0.94302 | . |******************* | 0.202715
11 66.743088 0.93689 | . |******************* | 0.212495
12 66.265468 0.93019 | . |******************* | 0.221725
13 65.814966 0.92386 | . |****************** | 0.230463
14 65.304258 0.91670 | . |****************** | 0.238769
15 64.840097 0.91018 | . |****************** | 0.246673
16 64.403365 0.90405 | . |****************** | 0.254225
17 63.913183 0.89717 | . |****************** | 0.261462
18 63.390413 0.88983 | . |****************** | 0.268398
19 62.951330 0.88367 | . |****************** | 0.275051
20 62.480563 0.87706 | . |****************** | 0.281458
170
Autocorrelations
21 61.986354 0.87012 | . |***************** | 0.287630
22 61.543600 0.86391 | . |***************** | 0.293579
23 61.056468 0.85707 | . |***************** | 0.299326
24 60.586400 0.85047 | . |***************** | 0.304878

Zero Mean 0 -0.4199 0.5874 -1.09 0.2497
1 -0.4111 0.5894 -1.23 0.2027
2 -0.4076 0.5902 -1.33 0.1715
Single Mean 0 -1.5434 0.8307 -0.77 0.8248 0.76 0.8773
1 -1.0951 0.8770 -0.63 0.8610 0.83 0.8591
2 -0.8699 0.8976 -0.55 0.8791 0.92 0.8357
Trend 0 -12.2504 0.2979 -2.66 0.2558 3.61 0.4534
1 -9.6731 0.4559 -2.37 0.3968 2.89 0.5987
2 -8.3425 0.5546 -2.20 0.4873 2.51 0.6735
171
Autocorrelations
0 0.649010 1.00000 | |********************| 0
1 -0.091046 -.14029 | ***| . | 0.047782
2 -0.044911 -.06920 | .*| . | 0.048713
3 0.051756 0.07975 | . |** | 0.048937
4 -0.010332 -.01592 | .|. | 0.049233
5 -0.011923 -.01837 | .|. | 0.049245
6 0.0030717 0.00473 | .|. | 0.049260
7 -0.021900 -.03374 | .*| . | 0.049261
8 0.055893 0.08612 | . |** | 0.049314
9 0.0049821 0.00768 | .|. | 0.049656
10 -0.0008081 -.00125 | .|. | 0.049659
11 0.021275 0.03278 | . |*. | 0.049659
12 -0.0073610 -.01134 | .|. | 0.049708
13 0.028697 0.04422 | . |*. | 0.049714
14 -0.033428 -.05151 | .*| . | 0.049804
15 -0.075301 -.11602 | **| . | 0.049925
16 0.040772 0.06282 | . |*. | 0.050537
17 0.042691 0.06578 | . |*. | 0.050715
18 -0.062306 -.09600 | **| . | 0.050910
19 0.018323 0.02823 | . |*. | 0.051321
20 0.015964 0.02460 | .|. | 0.051357
21 -0.043234 -.06662 | .*| . | 0.051384
22 0.024873 0.03832 | . |*. | 0.051580
23 0.0013835 0.00213 | .|. | 0.051645
172
Autocorrelations
24 -0.017504 -.02697 | .*| . | 0.051646

Zero Mean 0 -497.142 0.0001 -24.10 <.0001
1 -590.283 0.0001 -17.17 <.0001
2 -481.288 0.0001 -12.41 <.0001
Single Mean 0 -498.306 0.0001 -24.14 <.0001 291.29 0.0010
1 -595.642 0.0001 -17.23 <.0001 148.40 0.0010
2 -490.657 0.0001 -12.47 <.0001 77.76 0.0010
Trend 0 -498.408 0.0001 -24.12 <.0001 290.83 0.0010
1 -596.215 0.0001 -17.22 <.0001 148.22 0.0010
2 -491.804 0.0001 -12.46 <.0001 77.69 0.0010
173
MODEL
CO-INTEGRATION

integration.
0 0 0.0341 15.5077 15.34
1 1 0.0008 0.3622 3.84
VECM-MODEL

Variable 1
CDS 0.06381
EQUITY 0.37507

Variable 1
CDS -0.51617
EQUITY 0.01512
Table 5.4
CDS Constant1 11.45002 2.92259 3.92 0.0001 1
AR1_1_1 -0.03294 0.00848 CDS (t-1)
AR1_1_2 -0.1936 0.04983 EQ (t-1)
AR2_1_1 0.36738 0.04247 8.65 0.0001 D_CDS (t-1)
AR2_1_2 -0.66628 0.17202 -3.87 0.0001 D_EQ (t-1)
EQ Constant2 -0.37807 0.83665 -0.45 0.6516 1
AR1_2_1 0.00096 0.00243 CDS (t-1)
AR1_2_2 0.00567 0.01427 EQ (t-1)
AR2_2_1 0.01418 0.01216 1.17 0.244 D_CDS (t-1)
AR2_2_2 -0.13507 0.04924 -2.74 0.0063 D_EQ (t-1)
174
Table 5.5

1 2 37.43 <.0001
2 2 1.43 0.4895

Table 5.6
CDS 0.2361 2.77433 33.3 <.0001
EQ 0.0227 0.79421 2.5 0.0421
Table 5.7
Watson Chi Square
CDS 2.05964 855.32 <.0001 13.49 0.0003
EQ 2.02698 79.4 <.0001 1.15 0.2847
175
CDS
STATIONARITY

Autocorrelations
0 9193.773 1.00000 | |********************| 0
1 9167.349 0.99713 | . |********************| 0.047782
2 9126.475 0.99268 | . |********************| 0.082602
3 9080.588 0.98769 | . |********************| 0.106408
4 9031.673 0.98237 | . |********************| 0.125607
5 8981.707 0.97693 | . |********************| 0.142070
6 8929.362 0.97124 | . |******************* | 0.156658
7 8874.669 0.96529 | . |******************* | 0.169850
8 8820.258 0.95937 | . |******************* | 0.181945
9 8766.415 0.95352 | . |******************* | 0.193149
10 8710.694 0.94746 | . |******************* | 0.203613
11 8650.613 0.94092 | . |******************* | 0.213441
12 8587.522 0.93406 | . |******************* | 0.222710
13 8523.396 0.92708 | . |******************* | 0.231481
14 8460.250 0.92022 | . |****************** | 0.239809
15 8397.657 0.91341 | . |****************** | 0.247739
16 8332.293 0.90630 | . |****************** | 0.255312
17 8263.938 0.89886 | . |****************** | 0.262555
18 8193.826 0.89124 | . |****************** | 0.269489
19 8124.197 0.88366 | . |****************** | 0.276136
176
Autocorrelations
20 8054.882 0.87612 | . |****************** | 0.282519
21 7986.462 0.86868 | . |***************** | 0.288655
22 7919.980 0.86145 | . |***************** | 0.294563
23 7854.361 0.85431 | . |***************** | 0.300260
24 7788.701 0.84717 | . |***************** | 0.305759

Zero Mean 0 0.3119 0.7585 0.54 0.8321
1 0.0144 0.6860 0.02 0.6877
2 0.1067 0.7076 0.12 0.7216
Single Mean 0 -1.0958 0.8769 -0.90 0.7870 1.02 0.8110
1 -2.3500 0.7359 -1.18 0.6846 0.91 0.8375
2 -2.0046 0.7777 -1.11 0.7142 0.89 0.8440
Trend 0 -1.2249 0.9852 -0.47 0.9846 0.41 0.9900
1 -6.8493 0.6742 -1.58 0.7989 1.38 0.9022
2 -5.3685 0.7923 -1.35 0.8734 1.06 0.9590
177
Autocorrelations
0 30.919984 1.00000 | |********************| 0
1 14.082069 0.45544 | . |********* | 0.047782
2 4.025087 0.13018 | . |*** | 0.056835
3 2.588448 0.08371 | . |** | 0.057512
4 1.153636 0.03731 | . |*. | 0.057789
5 2.040216 0.06598 | . |*. | 0.057844
6 1.061069 0.03432 | . |*. | 0.058016
7 -1.128977 -.03651 | .*| . | 0.058062
8 -1.470985 -.04757 | .*| . | 0.058115
9 1.628640 0.05267 | . |*. | 0.058204
10 4.349257 0.14066 | . |*** | 0.058312
11 2.151438 0.06958 | . |*. | 0.059082
12 0.475260 0.01537 | .|. | 0.059269
13 -2.008876 -.06497 | .*| . | 0.059278
14 -1.587709 -.05135 | .*| . | 0.059440
15 1.399204 0.04525 | . |*. | 0.059541
16 2.222676 0.07188 | . |*. | 0.059620
17 1.508954 0.04880 | . |*. | 0.059817
18 -0.910646 -.02945 | .*| . | 0.059908
19 -0.779712 -.02522 | .*| . | 0.059941
20 -0.979613 -.03168 | .*| . | 0.059965
21 -0.948482 -.03068 | .*| . | 0.060004
22 -0.613229 -.01983 | .|. | 0.060039
23 -0.028188 -.00091 | .|. | 0.060054
178
Autocorrelations
24 1.582776 0.05119 | . |*. | 0.060054

Zero Mean 0 -237.130 0.0001 -12.75 <.0001
1 -286.626 0.0001 -11.92 <.0001
2 -230.956 0.0001 -9.49 <.0001
Single Mean 0 -237.790 0.0001 -12.76 <.0001 81.43 0.0010
1 -288.157 0.0001 -11.94 <.0001 71.26 0.0010
2 -232.927 0.0001 -9.51 <.0001 45.21 0.0010
Trend 0 -238.098 0.0001 -12.76 <.0001 81.44 0.0010
1 -288.667 0.0001 -11.94 <.0001 71.28 0.0010
2 -233.587 0.0001 -9.51 <.0001 45.27 0.0010
179
EQUITY
STATIONARITY

Autocorrelations
0 80.500786 1.00000 | |********************| 0
1 80.038245 0.99425 | . |********************| 0.047782
2 79.612465 0.98897 | . |********************| 0.082444
3 79.211675 0.98399 | . |********************| 0.106127
4 78.789013 0.97874 | . |********************| 0.125236
5 78.398010 0.97388 | . |******************* | 0.141627
6 78.011717 0.96908 | . |******************* | 0.156170
7 77.573768 0.96364 | . |******************* | 0.169343
8 77.131567 0.95815 | . |******************* | 0.181431
9 76.642697 0.95207 | . |******************* | 0.192638
10 76.115488 0.94552 | . |******************* | 0.203097
11 75.613381 0.93929 | . |******************* | 0.212910
12 75.065185 0.93248 | . |******************* | 0.222169
13 74.544006 0.92600 | . |******************* | 0.230932
14 73.976168 0.91895 | . |****************** | 0.239259
15 73.434504 0.91222 | . |****************** | 0.247186
16 72.917233 0.90580 | . |****************** | 0.254756
17 72.347945 0.89872 | . |****************** | 0.262006
18 71.736314 0.89113 | . |****************** | 0.268952
19 71.175922 0.88416 | . |****************** | 0.275611
20 70.599699 0.87701 | . |****************** | 0.282013
21 70.007597 0.86965 | . |***************** | 0.288172
180
Autocorrelations
22 69.440384 0.86261 | . |***************** | 0.294103
23 68.844195 0.85520 | . |***************** | 0.299824
24 68.266272 0.84802 | . |***************** | 0.305342

Zero Mean 0 -0.6199 0.5444 -1.56 0.1128
1 -0.6128 0.5459 -1.71 0.0822
2 -0.6140 0.5456 -1.89 0.0566
Single Mean 0 -1.1037 0.8762 -0.70 0.8446 1.26 0.7491
1 -0.8827 0.8965 -0.62 0.8625 1.49 0.6909
2 -0.7461 0.9081 -0.58 0.8721 1.78 0.6149
Trend 0 -7.9768 0.5833 -2.05 0.5750 2.10 0.7567
1 -6.4670 0.7053 -1.83 0.6892 1.68 0.8411
2 -5.3139 0.7964 -1.64 0.7746 1.35 0.9070
181
Autocorrelations
0 0.463158 1.00000 | |********************| 0
1 -0.052117 -.11253 | **| . | 0.047782
2 -0.039721 -.08576 | **| . | 0.048383
3 0.030843 0.06659 | . |*. | 0.048729
4 -0.0088870 -.01919 | .|. | 0.048936
5 0.0028092 0.00607 | .|. | 0.048953
6 0.0085925 0.01855 | .|. | 0.048955
7 -0.010600 -.02289 | .|. | 0.048971
8 0.039246 0.08474 | . |** | 0.048996
9 -0.0020832 -.00450 | .|. | 0.049329
10 -0.0026002 -.00561 | .|. | 0.049330
11 0.022955 0.04956 | . |*. | 0.049331
12 0.0019856 0.00429 | .|. | 0.049445
13 0.012072 0.02606 | . |*. | 0.049446
14 -0.0098142 -.02119 | .|. | 0.049477
15 -0.039096 -.08441 | **| . | 0.049498
16 0.044015 0.09503 | . |** | 0.049825
17 0.040881 0.08827 | . |** | 0.050238
18 -0.034906 -.07537 | **| . | 0.050590
19 0.0024852 0.00537 | .|. | 0.050846
20 0.013148 0.02839 | . |*. | 0.050847
21 -0.029651 -.06402 | .*| . | 0.050884
22 0.011746 0.02536 | . |*. | 0.051067
23 0.0034855 0.00753 | .|. | 0.051096
182
Autocorrelations
24 -0.015811 -.03414 | .*| . | 0.051098

Zero Mean 0 -483.729 0.0001 -23.42 <.0001
1 -581.080 0.0001 -17.06 <.0001
2 -485.503 0.0001 -12.44 <.0001
Single Mean 0 -486.198 0.0001 -23.51 <.0001 276.46 0.0010
1 -592.229 0.0001 -17.19 <.0001 147.79 0.0010
2 -505.889 0.0001 -12.59 <.0001 79.22 0.0010
Trend 0 -486.194 0.0001 -23.49 <.0001 275.83 0.0010
1 -592.256 0.0001 -17.17 <.0001 147.46 0.0010
2 -505.971 0.0001 -12.57 <.0001 79.03 0.0010
183
MODEL
CO-INTEGRATION

integration.
0 0 0.0214 9.7581 15.34
1 1 0.0008 0.3312 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.42645 0.03928 10.86 0.0001 CDS (t-1)
AR1_1_2 -2.90776 0.32088 -9.06 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.05391 0.03232 -1.67 0.0961 1
AR1_2_1 0.00787 0.00581 1.36 0.1758 CDS (t-1)
AR1_2_2 -0.10727 0.04743 -2.26 0.0242 EQ (t-1)
Table 3.3

1 2 82.12 <.0001
2 2 1.84 0.1751

184
Table 3.4
CDS 1diff 0.3341 4.55348 108.86 <.0001
EQ 1diff 0.017 0.6731 3.76 0.0242
Table 3.5
Watson Chi Square
CDS 1diff 2.0782 662.74 <.0001 12.21 0.0005
EQ 1diff 2.00482 24.15 <.0001 0.72 0.3978
185
CDS
STATIONARITY

Autocorrelations
0 92329.999 1.00000 | |********************| 0
1 92040.342 0.99686 | . |********************| 0.047782
2 91670.245 0.99285 | . |********************| 0.082588
3 91237.326 0.98817 | . |********************| 0.106404
4 90756.945 0.98296 | . |********************| 0.125621
5 90261.314 0.97759 | . |********************| 0.142101
6 89737.036 0.97192 | . |******************* | 0.156705
7 89187.934 0.96597 | . |******************* | 0.169911
8 88622.581 0.95985 | . |******************* | 0.182018
9 88039.893 0.95354 | . |******************* | 0.193229
10 87439.867 0.94704 | . |******************* | 0.203689
11 86820.993 0.94033 | . |******************* | 0.213505
12 86180.011 0.93339 | . |******************* | 0.222760
13 85522.556 0.92627 | . |******************* | 0.231517
14 84849.210 0.91898 | . |****************** | 0.239829
15 84169.794 0.91162 | . |****************** | 0.247738
16 83466.296 0.90400 | . |****************** | 0.255282
17 82730.595 0.89603 | . |****************** | 0.262489
18 81974.804 0.88785 | . |****************** | 0.269382
19 81194.672 0.87940 | . |****************** | 0.275982
186
Autocorrelations
20 80415.240 0.87095 | . |***************** | 0.282307
21 79641.538 0.86257 | . |***************** | 0.288376
22 78895.803 0.85450 | . |***************** | 0.294208
23 78167.311 0.84661 | . |***************** | 0.299821
24 77446.464 0.83880 | . |***************** | 0.305230

Zero Mean 0 0.6186 0.8359 1.36 0.9568
1 0.4359 0.7904 0.60 0.8462
2 0.4313 0.7892 0.59 0.8424
Single Mean 0 -0.7693 0.9062 -0.81 0.8141 2.33 0.4753
1 -1.4062 0.8455 -0.94 0.7751 1.17 0.7726
2 -1.4953 0.8359 -0.98 0.7607 1.21 0.7608
Trend 0 -1.4106 0.9823 -0.60 0.9784 0.37 0.9900
1 -5.6105 0.7737 -1.49 0.8320 1.18 0.9404
2 -5.7181 0.7653 -1.48 0.8354 1.19 0.9393
187
Autocorrelations
0 188.678 1.00000 | |********************| 0
1 80.057769 0.42431 | . |******** | 0.047782
2 35.853886 0.19003 | . |**** | 0.055724
3 28.275728 0.14986 | . |*** | 0.057185
4 23.708719 0.12566 | . |*** | 0.058074
5 30.783547 0.16315 | . |*** | 0.058692
6 11.243504 0.05959 | . |*. | 0.059718
7 6.184162 0.03278 | . |*. | 0.059854
8 11.804051 0.06256 | . |*. | 0.059895
9 17.590736 0.09323 | . |** | 0.060044
10 12.952858 0.06865 | . |*. | 0.060374
11 4.637757 0.02458 | .|. | 0.060552
12 8.492896 0.04501 | . |*. | 0.060574
13 3.541938 0.01877 | .|. | 0.060651
14 -3.724335 -.01974 | .|. | 0.060664
15 9.875348 0.05234 | . |*. | 0.060679
16 17.733699 0.09399 | . |** | 0.060782
17 19.579603 0.10377 | . |** | 0.061112
18 6.291425 0.03334 | . |*. | 0.061513
19 -11.918689 -.06317 | .*| . | 0.061555
20 -10.305621 -.05462 | .*| . | 0.061703
21 -14.690940 -.07786 | **| . | 0.061813
22 -9.754400 -.05170 | .*| . | 0.062036
23 -4.551015 -.02412 | .|. | 0.062135
188
Autocorrelations
24 0.543776 0.00288 | .|. | 0.062156

Zero Mean 0 -248.958 0.0001 -13.18 <.0001
1 -238.555 0.0001 -10.83 <.0001
2 -191.340 0.0001 -8.71 <.0001
Single Mean 0 -251.239 0.0001 -13.25 <.0001 87.75 0.0010
1 -242.598 0.0001 -10.90 <.0001 59.37 0.0010
2 -196.313 0.0001 -8.78 <.0001 38.57 0.0010
Trend 0 -251.441 0.0001 -13.24 <.0001 87.70 0.0010
1 -242.777 0.0001 -10.89 <.0001 59.32 0.0010
2 -196.473 0.0001 -8.78 <.0001 38.59 0.0010
189
EQUITY
STATIONARITY

Autocorrelations
0 95.922428 1.00000 | |********************| 0
1 95.273907 0.99324 | . |********************| 0.047782
2 94.664170 0.98688 | . |********************| 0.082388
3 94.074389 0.98073 | . |********************| 0.105995
4 93.463665 0.97437 | . |******************* | 0.125008
5 92.888544 0.96837 | . |******************* | 0.141287
6 92.304478 0.96228 | . |******************* | 0.155705
7 91.657818 0.95554 | . |******************* | 0.168737
8 91.011762 0.94881 | . |******************* | 0.180669
9 90.322081 0.94162 | . |******************* | 0.191708
10 89.578214 0.93386 | . |******************* | 0.201992
11 88.878457 0.92657 | . |******************* | 0.211620
12 88.124174 0.91870 | . |****************** | 0.220688
13 87.419104 0.91135 | . |****************** | 0.229253
14 86.638317 0.90321 | . |****************** | 0.237381
15 85.877721 0.89528 | . |****************** | 0.245101
16 85.121708 0.88740 | . |****************** | 0.252457
17 84.303323 0.87887 | . |****************** | 0.259481
18 83.436491 0.86983 | . |***************** | 0.266191
19 82.642984 0.86156 | . |***************** | 0.272603
20 81.828865 0.85307 | . |***************** | 0.278750
21 81.014255 0.84458 | . |***************** | 0.284648
190
Autocorrelations
22 80.227315 0.83638 | . |***************** | 0.290313
23 79.401521 0.82777 | . |***************** | 0.295763
24 78.596815 0.81938 | . |**************** | 0.301006

Zero Mean 0 -0.7626 0.5159 -1.89 0.0557
1 -0.7567 0.5170 -2.08 0.0358
2 -0.7528 0.5178 -2.19 0.0276
Single Mean 0 -1.7161 0.8113 -1.10 0.7183 1.99 0.5613
1 -1.5247 0.8327 -1.08 0.7242 2.33 0.4751
2 -1.4325 0.8427 -1.08 0.7264 2.53 0.4219
Trend 0 -11.0438 0.3656 -2.23 0.4730 2.57 0.6624
1 -8.8382 0.5167 -1.94 0.6298 2.02 0.7736
2 -7.8242 0.5954 -1.80 0.7042 1.77 0.8238
191
Autocorrelations
0 0.541377 1.00000 | |********************| 0
1 -0.058587 -.10822 | **| . | 0.047782
2 -0.026014 -.04805 | .*| . | 0.048338
3 0.041173 0.07605 | . |** | 0.048447
4 -0.014682 -.02712 | .*| . | 0.048719
5 0.0070659 0.01305 | .|. | 0.048753
6 -0.015748 -.02909 | .*| . | 0.048761
7 -0.013014 -.02404 | .|. | 0.048801
8 0.040379 0.07459 | . |*. | 0.048828
9 0.0051241 0.00946 | .|. | 0.049087
10 -0.012731 -.02352 | .|. | 0.049092
11 0.026606 0.04915 | . |*. | 0.049117
12 0.0059796 0.01105 | .|. | 0.049229
13 0.027678 0.05112 | . |*. | 0.049235
14 -0.0022410 -.00414 | .|. | 0.049356
15 -0.058947 -.10888 | **| . | 0.049357
16 0.048890 0.09031 | . |** | 0.049902
17 0.045641 0.08431 | . |** | 0.050274
18 -0.048975 -.09046 | **| . | 0.050596
19 0.0077841 0.01438 | .|. | 0.050964
20 0.010863 0.02006 | .|. | 0.050973
21 -0.033097 -.06113 | .*| . | 0.050991
22 0.0048681 0.00899 | .|. | 0.051158
23 -0.0038721 -.00715 | .|. | 0.051162
192
Autocorrelations
24 -0.021301 -.03935 | .*| . | 0.051164

Zero Mean 0 -481.015 0.0001 -23.26 <.0001
1 -531.838 0.0001 -16.32 <.0001
2 -421.818 0.0001 -11.89 <.0001
Single Mean 0 -484.311 0.0001 -23.40 <.0001 273.77 0.0010
1 -544.993 0.0001 -16.49 <.0001 135.94 0.0010
2 -442.895 0.0001 -12.06 <.0001 72.71 0.0010
Trend 0 -484.590 0.0001 -23.38 <.0001 273.40 0.0010
1 -546.043 0.0001 -16.48 <.0001 135.86 0.0010
2 -444.399 0.0001 -12.06 <.0001 72.71 0.0010
193
MODEL
CO-INTEGRATION

integration.
0 0 0.0294 14.2603 15.34
1 1 0.0028 1.2339 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.39976 0.03973 10.06 0.0001 CDS (t-1)
AR1_1_2 -6.93038 0.74121 -9.35 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.06795 0.03516 -1.93 0.0539 1
AR1_2_1 0.0022 0.00255 0.86 0.388 CDS (t-1)
AR1_2_2 -0.10547 0.04749 -2.22 0.0269 EQ (t-1)
Table 3.3

1 2 87.42 <.0001
2 2 0.75 0.3875

194
Table 3.4
CDS 1diff 0.3181 11.38451 101.21 <0.0001
EQ 1diff 0.0136 0.72938 2.98 0.0516
Table 3.5
Watson Chi Square
CDS 1diff 2.1646 123.17 <.0001 17.32 <.0001
EQ 1diff 2.00557 32.28 <.0001 0.31 0.5798
195
Appendix 18 – INVESTMENT GRADE
CDS
STATIONARITY

Autocorrelations
0 3084.198 1.00000 | |********************| 0
1 3076.764 0.99759 | .|********************| 0.027227
2 3067.104 0.99446 | . |********************| 0.047082
3 3056.428 0.99100 | . |********************| 0.060687
4 3045.271 0.98738 | . |********************| 0.071686
5 3034.000 0.98372 | . |********************| 0.081144
6 3022.343 0.97994 | . |********************| 0.089549
7 3010.419 0.97608 | . |********************| 0.097174
8 2998.626 0.97225 | . |******************* | 0.104188
9 2987.268 0.96857 | . |******************* | 0.110710
10 2975.942 0.96490 | . |******************* | 0.116823
11 2964.192 0.96109 | . |******************* | 0.122588
12 2951.695 0.95704 | . |******************* | 0.128052
13 2938.791 0.95285 | . |******************* | 0.133249
14 2925.662 0.94860 | . |******************* | 0.138208
15 2912.058 0.94419 | . |******************* | 0.142952
16 2897.457 0.93945 | . |******************* | 0.147503
17 2881.838 0.93439 | . |******************* | 0.151874
18 2866.037 0.92926 | . |******************* | 0.156077
19 2850.196 0.92413 | . |****************** | 0.160126
20 2834.131 0.91892 | . |****************** | 0.164032
21 2818.055 0.91371 | . |****************** | 0.167804
22 2802.441 0.90864 | . |****************** | 0.171453
196
Autocorrelations
23 2787.451 0.90378 | . |****************** | 0.174986
24 2772.853 0.89905 | . |****************** | 0.178413

Zero Mean 0 1.8073 0.9832 1.89 0.9863
1 0.9913 0.9115 0.63 0.8525
2 1.2858 0.9497 0.92 0.9045
Single Mean 0 1.2268 0.9923 0.88 0.9953 1.95 0.5713
1 -0.4693 0.9295 -0.21 0.9352 0.59 0.9235
2 0.1095 0.9627 0.05 0.9621 0.74 0.8815
Trend 0 -1.0740 0.9874 -0.61 0.9778 2.69 0.6377
1 -3.6732 0.9050 -1.28 0.8912 1.70 0.8379
2 -2.7808 0.9458 -1.09 0.9295 1.71 0.8346
197
Autocorrelations
0 4.388184 1.00000 | |********************| 0
1 1.993354 0.45425 | .|********* | 0.027237
2 0.511146 0.11648 | .|** | 0.032373
3 0.201439 0.04590 | .|* | 0.032682
4 0.141152 0.03217 | .|* | 0.032730
5 0.110958 0.02529 | .|* | 0.032753
6 -0.079133 -.01803 | .|. | 0.032768
7 -0.259706 -.05918 | *|. | 0.032775
8 -0.280468 -.06391 | *|. | 0.032854
9 0.302948 0.06904 | .|* | 0.032947
10 0.614446 0.14002 | .|*** | 0.033054
11 0.302948 0.06904 | .|* | 0.033491
12 -0.076140 -.01735 | .|. | 0.033596
13 -0.238066 -.05425 | *|. | 0.033603
14 -0.129233 -.02945 | *|. | 0.033668
15 0.302628 0.06896 | .|* | 0.033687
16 0.405072 0.09231 | .|** | 0.033791
17 0.217240 0.04951 | .|* | 0.033978
18 -0.053443 -.01218 | .|. | 0.034031
19 0.036822 0.00839 | .|. | 0.034035
20 -0.071216 -.01623 | .|. | 0.034036
21 -0.238140 -.05427 | *|. | 0.034042
22 -0.228327 -.05203 | *|. | 0.034106
23 -0.077410 -.01764 | .|. | 0.034165
24 0.095700 0.02181 | .|. | 0.034172

198
Zero Mean 0 -732.709 0.0001 -22.41 <.0001
1 -916.668 0.0001 -21.35 <.0001
2 -801.754 0.0001 -17.50 <.0001
Single Mean 0 -734.426 0.0001 -22.44 <.0001 251.72 0.0010
1 -920.852 0.0001 -21.39 <.0001 228.69 0.0010
2 -807.644 0.0001 -17.53 <.0001 153.73 0.0010
Trend 0 -737.135 0.0001 -22.48 <.0001 252.73 0.0010
1 -927.542 0.0001 -21.45 <.0001 230.02 0.0010
2 -817.294 0.0001 -17.60 <.0001 154.88 0.0010
AUTOCORRELATION


199
Test
AR(1) 1346.9729 <.0001
AR(2) 1347.3508 <.0001
AR(3) 1347.3641 <.0001
AR(4) 1347.3662 <.0001


200
Test
AR(1) 278.4716 <.0001
AR(2) 291.9942 <.0001
AR(3) 294.5321 <.0001
AR(4) 294.5422 <.0001
201
EQUITY
STATIONARITY

Autocorrelations
0 48.992883 1.00000 | |********************| 0
1 48.783824 0.99573 | .|********************| 0.027227
2 48.607518 0.99213 | . |********************| 0.047024
3 48.454051 0.98900 | . |********************| 0.060585
4 48.272662 0.98530 | . |********************| 0.071559
5 48.096257 0.98170 | . |********************| 0.080994
6 47.925004 0.97820 | . |********************| 0.089380
7 47.753871 0.97471 | . |******************* | 0.096992
8 47.586496 0.97129 | . |******************* | 0.104000
9 47.403435 0.96756 | . |******************* | 0.110520
10 47.216761 0.96375 | . |******************* | 0.116631
11 47.035896 0.96006 | . |******************* | 0.122392
12 46.843762 0.95613 | . |******************* | 0.127852
13 46.643688 0.95205 | . |******************* | 0.133047
14 46.433104 0.94775 | . |******************* | 0.138005
15 46.232559 0.94366 | . |******************* | 0.142748
16 46.046788 0.93987 | . |******************* | 0.147300
17 45.838990 0.93563 | . |******************* | 0.151680
18 45.619511 0.93115 | . |******************* | 0.155900
19 45.418883 0.92705 | . |******************* | 0.159970
20 45.216568 0.92292 | . |****************** | 0.163904
21 45.003360 0.91857 | . |****************** | 0.167712
22 44.801865 0.91446 | . |****************** | 0.171401
23 44.588919 0.91011 | . |****************** | 0.174980
24 44.380207 0.90585 | . |****************** | 0.178454
202
Zero Mean 0 -0.1411 0.6509 -0.33 0.5682
1 -0.1268 0.6541 -0.33 0.5671
2 -0.1148 0.6569 -0.33 0.5676
Single Mean 0 -3.3425 0.6155 -1.20 0.6769 0.73 0.8844
1 -2.4995 0.7183 -1.01 0.7522 0.52 0.9467
2 -1.9575 0.7838 -0.86 0.7997 0.39 0.9761
Trend 0 -2.2556 0.9634 -0.78 0.9659 1.74 0.8289
1 -1.3523 0.9834 -0.53 0.9823 1.91 0.7954
2 -0.7578 0.9910 -0.32 0.9899 2.20 0.7369
203
Autocorrelations
0 0.281315 1.00000 | |********************| 0
1 -0.032450 -.11535 | **|. | 0.027237
2 -0.022693 -.08067 | **|. | 0.027597
3 0.022773 0.08095 | .|** | 0.027771
4 -0.0033311 -.01184 | .|. | 0.027946
5 -0.0043126 -.01533 | .|. | 0.027949
6 -0.0037160 -.01321 | .|. | 0.027956
7 -0.0067897 -.02414 | .|. | 0.027960
8 0.018273 0.06496 | .|* | 0.027976
9 -0.0009268 -.00329 | .|. | 0.028087
10 0.0049757 0.01769 | .|. | 0.028088
11 0.0094626 0.03364 | .|* | 0.028096
12 0.0027615 0.00982 | .|. | 0.028126
13 0.0093474 0.03323 | .|* | 0.028128
14 -0.0056024 -.01991 | .|. | 0.028157
15 -0.024467 -.08697 | **|. | 0.028168
16 0.020153 0.07164 | .|* | 0.028366
17 0.016384 0.05824 | .|* | 0.028500
18 -0.019827 -.07048 | *|. | 0.028588
19 0.00065560 0.00233 | .|. | 0.028717
20 0.0054657 0.01943 | .|. | 0.028717
21 -0.014639 -.05204 | *|. | 0.028727
22 0.0090231 0.03207 | .|* | 0.028797
23 0.0024442 0.00869 | .|. | 0.028823
24 -0.0056864 -.02021 | .|. | 0.028825

204
Zero Mean 0 -1502.37 0.0001 -41.20 <.0001
1 -1817.38 0.0001 -30.12 <.0001
2 -1490.62 0.0001 -21.87 <.0001
Single Mean 0 -1502.39 0.0001 -41.18 <.0001 848.03 0.0010
1 -1817.51 0.0001 -30.11 <.0001 453.40 0.0010
2 -1490.86 0.0001 -21.86 <.0001 238.92 0.0010
Trend 0 -1505.59 0.0001 -41.26 <.0001 851.40 0.0010
1 -1832.20 0.0001 -30.22 <.0001 456.66 0.0010
2 -1516.77 0.0001 -21.97 <.0001 241.30 0.0010
AUTOCORRELATION


205
Test
AR(1) 1339.9142 <.0001
AR(2) 1340.0097 <.0001
AR(3) 1340.0674 <.0001
AR(4) 1340.0940 <.0001



Test
206
AR(1) 17.9382 <.0001
AR(2) 30.0042 <.0001
AR(3) 34.9291 <.0001
AR(4) 34.9353 <.0001
MODEL
CO-INTEGRATION

integration.
0 0 0.0044 6.3969 15.34
1 1 0.0003 0.4611 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.40062 0.02760 14.51 0.0001 CDS (t-1)
AR1_1_2 -1.26317 0.09215 -13.71 0.0001 EQ (t-1)
AR2_1_1 -0.04711 0.02586 -1.82 0.0687 CDS (t-2)
AR2_1_2 -0.49717 0.09690 -5.13 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00356 0.01433 -0.25 0.8039 1
AR1_2_1 0.01952 0.00834 2.34 0.0194 CDS (t-1)
AR1_2_2 -0.11200 0.02784 -4.02 0.0001 EQ (t-1)
AR2_2_1 -0.01088 0.00781 -1.39 0.1641 CDS (t-2)
AR2_2_2 -0.07091 0.02928 -2.42 0.0156 EQ (t-2)
Table 5.3
207
1 2 195.67 < 0.0001
2 2 5.59 0.0612

Table 5.4
CDS 1diff 0.3163 1.73640 155.12 < 0.0001
EQ 1diff 0.0263 0.52466 9.07 < 0.0001
Table 5.5
Watson Chi Square
CDS 1diff 2.00886 9999.99 < 0.0001 144.79 < 0.0001
EQ 1diff 1.98920 1679.99 < 0.0001 44.75 < 0.0001
208
Appendix 19 – HIGH YIELD
CDS
STATIONARITY

Autocorrelations
0 85423.524 1.00000 | |********************| 0
1 85287.062 0.99840 | .|********************| 0.027227
2 85112.836 0.99636 | . |********************| 0.047108
3 84902.928 0.99391 | . |********************| 0.060753
4 84667.323 0.99115 | . |********************| 0.071802
5 84418.758 0.98824 | . |********************| 0.081314
6 84148.142 0.98507 | . |********************| 0.089777
7 83858.590 0.98168 | . |********************| 0.097460
8 83557.352 0.97815 | . |********************| 0.104534
9 83249.760 0.97455 | . |******************* | 0.111112
10 82940.000 0.97093 | . |******************* | 0.117277
11 82625.747 0.96725 | . |******************* | 0.123091
12 82298.611 0.96342 | . |******************* | 0.128602
13 81962.872 0.95949 | . |******************* | 0.133846
14 81617.249 0.95544 | . |******************* | 0.138851
15 81267.567 0.95135 | . |******************* | 0.143642
16 80904.913 0.94710 | . |******************* | 0.148239
17 80531.886 0.94274 | . |******************* | 0.152659
18 80149.121 0.93826 | . |******************* | 0.156915
19 79758.068 0.93368 | . |******************* | 0.161020
20 79363.274 0.92906 | . |******************* | 0.164984
21 78968.125 0.92443 | . |****************** | 0.168818
22 78585.901 0.91996 | . |****************** | 0.172530
209
Autocorrelations
23 78209.090 0.91555 | . |****************** | 0.176129
24 77834.134 0.91116 | . |****************** | 0.179622

Zero Mean 0 1.4402 0.9632 1.84 0.9847
1 0.9145 0.8985 0.72 0.8711
2 0.7629 0.8690 0.56 0.8373
Single Mean 0 0.6222 0.9809 0.57 0.9889 2.26 0.4899
1 -0.3871 0.9351 -0.22 0.9336 0.82 0.8619
2 -0.6816 0.9136 -0.36 0.9135 0.75 0.8793
Trend 0 -1.5910 0.9793 -1.00 0.9428 1.98 0.7809
1 -3.6213 0.9077 -1.41 0.8574 1.53 0.8724
2 -4.1140 0.8798 -1.49 0.8322 1.53 0.8715
210
Autocorrelations
0 75.843021 1.00000 | |********************| 0
1 33.521921 0.44199 | .|********* | 0.027237
2 18.839581 0.24840 | .|***** | 0.032120
3 13.040797 0.17194 | .|*** | 0.033515
4 10.014724 0.13205 | .|*** | 0.034163
5 15.239986 0.20094 | .|**** | 0.034539
6 9.739829 0.12842 | .|*** | 0.035396
7 7.037779 0.09279 | .|** | 0.035740
8 8.080389 0.10654 | .|** | 0.035918
9 7.131033 0.09402 | .|** | 0.036152
10 6.477075 0.08540 | .|** | 0.036333
11 3.676871 0.04848 | .|* | 0.036481
12 3.161184 0.04168 | .|* | 0.036529
13 -0.782964 -.01032 | .|. | 0.036565
14 -3.324278 -.04383 | *|. | 0.036567
15 2.821680 0.03720 | .|* | 0.036606
16 5.366284 0.07076 | .|* | 0.036634
17 8.651856 0.11408 | .|** | 0.036735
18 3.275851 0.04319 | .|* | 0.036997
19 -3.494169 -.04607 | *|. | 0.037034
20 -3.454293 -.04555 | *|. | 0.037077
21 -7.090035 -.09348 | **|. | 0.037118
22 -2.512721 -.03313 | *|. | 0.037292
23 0.335228 0.00442 | .|. | 0.037314
24 4.556487 0.06008 | .|* | 0.037315

211
Zero Mean 0 -748.551 0.0001 -22.74 <.0001
1 -648.256 0.0001 -17.88 <.0001
2 -565.516 0.0001 -15.08 <.0001
Single Mean 0 -750.910 0.0001 -22.78 <.0001 259.50 0.0010
1 -652.004 0.0001 -17.92 <.0001 160.62 0.0010
2 -570.346 0.0001 -15.12 <.0001 114.37 0.0010
Trend 0 -752.561 0.0001 -22.81 <.0001 260.05 0.0010
1 -654.645 0.0001 -17.94 <.0001 161.01 0.0010
2 -573.837 0.0001 -15.14 <.0001 114.69 0.0010
AUTOCORRELATION


212
Test
AR(1) 1347.4659 <.0001
AR(2) 1347.6512 <.0001
AR(3) 1347.6627 <.0001
AR(4) 1347.6662 <.0001


213
Test
AR(1) 263.6621 <.0001
AR(2) 268.8385 <.0001
AR(3) 271.8410 <.0001
AR(4) 273.2075 <.0001
214
EQUITY
STATIONARITY

Autocorrelations
0 70.777886 1.00000 | |********************| 0
1 70.597011 0.99744 | .|********************| 0.027227
2 70.412903 0.99484 | . |********************| 0.047078
3 70.229255 0.99225 | . |********************| 0.060693
4 70.036249 0.98952 | . |********************| 0.071717
5 69.843923 0.98680 | . |********************| 0.081210
6 69.651976 0.98409 | . |********************| 0.089659
7 69.453624 0.98129 | . |********************| 0.097337
8 69.251590 0.97844 | . |********************| 0.104413
9 69.043442 0.97549 | . |********************| 0.111002
10 68.824463 0.97240 | . |******************* | 0.117185
11 68.613047 0.96941 | . |******************* | 0.123021
12 68.392735 0.96630 | . |******************* | 0.128559
13 68.165863 0.96310 | . |******************* | 0.133835
14 67.933990 0.95982 | . |******************* | 0.138877
15 67.700951 0.95653 | . |******************* | 0.143711
16 67.465957 0.95321 | . |******************* | 0.148355
17 67.217635 0.94970 | . |******************* | 0.152828
18 66.970561 0.94621 | . |******************* | 0.157142
19 66.723602 0.94272 | . |******************* | 0.161310
20 66.470294 0.93914 | . |******************* | 0.165343
21 66.212346 0.93549 | . |******************* | 0.169251
22 65.956019 0.93187 | . |******************* | 0.173042
23 65.693431 0.92816 | . |******************* | 0.176723
24 65.439377 0.92457 | . |****************** | 0.180300
215
Zero Mean 0 -0.4453 0.5821 -0.99 0.2895
1 -0.4548 0.5800 -1.00 0.2844
2 -0.4558 0.5798 -1.02 0.2771
Single Mean 0 0.6423 0.9814 0.38 0.9823 0.71 0.8886
1 0.6313 0.9811 0.37 0.9819 0.72 0.8859
2 0.6836 0.9825 0.41 0.9835 0.77 0.8733
Trend 0 -2.3566 0.9604 -1.14 0.9201 3.15 0.5436
1 -2.3189 0.9615 -1.12 0.9241 3.03 0.5684
2 -2.2115 0.9647 -1.09 0.9293 3.05 0.5646
216
Autocorrelations
0 0.146492 1.00000 | |********************| 0
1 0.00085645 0.00585 | .|. | 0.027237
2 -0.0024640 -.01682 | .|. | 0.027238
3 0.0030013 0.02049 | .|. | 0.027245
4 0.00087008 0.00594 | .|. | 0.027257
5 0.0030234 0.02064 | .|. | 0.027258
6 0.00098242 0.00671 | .|. | 0.027269
7 0.0022099 0.01509 | .|. | 0.027271
8 0.0043070 0.02940 | .|* | 0.027277
9 0.0055878 0.03814 | .|* | 0.027300
10 0.0032663 0.02230 | .|. | 0.027340
11 0.0048234 0.03293 | .|* | 0.027353
12 0.0020255 0.01383 | .|. | 0.027383
13 0.0024162 0.01649 | .|. | 0.027388
14 0.0029703 0.02028 | .|. | 0.027395
15 -0.0077973 -.05323 | *|. | 0.027406
16 0.010799 0.07372 | .|* | 0.027483
17 0.0034274 0.02340 | .|. | 0.027629
18 0.0012897 0.00880 | .|. | 0.027644
19 0.0029948 0.02044 | .|. | 0.027646
20 -0.0008556 -.00584 | .|. | 0.027657
21 -0.0053996 -.03686 | *|. | 0.027658
22 0.0051839 0.03539 | .|* | 0.027695
23 -0.0018675 -.01275 | .|. | 0.027728
24 -0.0013158 -.00898 | .|. | 0.027732

217
Zero Mean 0 -1337.81 0.0001 -36.44 <.0001
1 -1380.18 0.0001 -26.25 <.0001
2 -1292.03 0.0001 -20.85 <.0001
Single Mean 0 -1339.12 0.0001 -36.46 <.0001 664.82 0.0010
1 -1384.35 0.0001 -26.28 <.0001 345.36 0.0010
2 -1299.86 0.0001 -20.89 <.0001 218.16 0.0010
Trend 0 -1344.08 0.0001 -36.58 <.0001 669.10 0.0010
1 -1399.82 0.0001 -26.41 <.0001 348.82 0.0010
2 -1329.17 0.0001 -21.03 <.0001 221.13 0.0010
AUTOCORRELATION


218
Test
AR(1) 1346.1939 <.0001
AR(2) 1346.1939 <.0001
AR(3) 1346.1949 <.0001
AR(4) 1346.1960 <.0001


219
Test
AR(1) 0.0461 0.8300
AR(2) 0.4291 0.8069
AR(3) 1.0067 0.7996
AR(4) 1.0461 0.9027
MODEL
CO-INTEGRATION

integration.
0 0 0.0068 9.4004 15.34
1 1 0.0002 0.2226 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.41559 0.02337 17.78 0.0001 CDS (t-1)
AR1_1_2 -6.38043 0.53152 -12.00 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.01221 0.01046 -1.17 0.2433 1
AR1_2_1 0.00055 0.00120 0.46 0.6470 CDS (t-1)
AR1_2_2 0.00705 0.02740 0.26 0.7969 EQ (t-1)
220
Table 5.3

1 2 144.10 < 0.0001
2 2 0.21 0.6469

Table 5.4
CDS 1diff 0.2735 7.43388 252.97 < 0.0001
EQ 1diff 0.0002 0.38319 0.13 0.8799
Table 5.5
Watson Chi Square
CDS 1diff 2.12445 9999.99 < 0.0001 73.76 < 0.0001
EQ 1diff 1.99966 297.67 < 0.0001 2.13 0.1450
221
Appendix 20 – Investment grade QUARTILE 1
CDS
STATIONARITY

Autocorrelations
0 502.463 1.00000 | |********************| 0
1 501.548 0.99818 | .|********************| 0.027227
2 500.319 0.99573 | . |********************| 0.047101
3 498.876 0.99286 | . |********************| 0.060732
4 497.304 0.98973 | . |********************| 0.071763
5 495.714 0.98657 | . |********************| 0.081254
6 494.036 0.98323 | . |********************| 0.089695
7 492.302 0.97978 | . |********************| 0.097358
8 490.514 0.97622 | . |********************| 0.104411
9 488.692 0.97259 | . |******************* | 0.110971
10 486.834 0.96889 | . |******************* | 0.117120
11 484.922 0.96509 | . |******************* | 0.122918
12 482.922 0.96111 | . |******************* | 0.128412
13 480.860 0.95701 | . |******************* | 0.133638
14 478.784 0.95287 | . |******************* | 0.138626
15 476.637 0.94860 | . |******************* | 0.143399
16 474.425 0.94420 | . |******************* | 0.147977
17 472.149 0.93967 | . |******************* | 0.152378
18 469.823 0.93504 | . |******************* | 0.156614
19 467.475 0.93037 | . |******************* | 0.160699
222
Autocorrelations
20 465.111 0.92566 | . |******************* | 0.164644
21 462.782 0.92103 | . |****************** | 0.168458
22 460.547 0.91658 | . |****************** | 0.172150
23 458.357 0.91222 | . |****************** | 0.175730
24 456.190 0.90791 | . |****************** | 0.179206

Zero Mean 0 1.1246 0.9310 1.34 0.9549
1 0.5999 0.8320 0.45 0.8125
2 0.4367 0.7911 0.30 0.7740
Single Mean 0 0.5891 0.9800 0.43 0.9843 1.02 0.8110
1 -0.8027 0.9037 -0.38 0.9109 0.45 0.9633
2 -1.2333 0.8638 -0.53 0.8827 0.46 0.9602
Trend 0 -1.2043 0.9857 -0.76 0.9680 2.45 0.6845
1 -3.0231 0.9361 -1.21 0.9062 1.56 0.8650
2 -3.5685 0.9105 -1.32 0.8818 1.55 0.8679
223
Autocorrelations
0 0.692405 1.00000 | |********************| 0
1 0.289976 0.41879 | .|******** | 0.027237
2 0.166654 0.24069 | .|***** | 0.031655
3 0.089532 0.12931 | .|*** | 0.032985
4 0.0072197 0.01043 | .|. | 0.033359
5 0.038950 0.05625 | .|* | 0.033361
6 0.022676 0.03275 | .|* | 0.033432
7 0.029558 0.04269 | .|* | 0.033455
8 0.017419 0.02516 | .|* | 0.033496
9 0.048652 0.07026 | .|* | 0.033510
10 0.077225 0.11153 | .|** | 0.033619
11 0.054657 0.07894 | .|** | 0.033892
12 -0.0001472 -.00021 | .|. | 0.034028
13 -0.022086 -.03190 | *|. | 0.034028
14 0.0060886 0.00879 | .|. | 0.034051
15 0.046451 0.06709 | .|* | 0.034052
16 0.054059 0.07807 | .|** | 0.034150
17 0.047894 0.06917 | .|* | 0.034282
18 0.011929 0.01723 | .|. | 0.034386
19 0.0073732 0.01065 | .|. | 0.034392
20 -0.049491 -.07148 | *|. | 0.034395
21 -0.071233 -.10288 | **|. | 0.034505
22 -0.034785 -.05024 | *|. | 0.034731
23 -0.0086443 -.01248 | .|. | 0.034785
224
Autocorrelations
24 0.051381 0.07421 | .|* | 0.034789

Zero Mean 0 -781.421 0.0001 -23.45 <.0001
1 -664.336 0.0001 -18.19 <.0001
2 -655.246 0.0001 -16.17 <.0001
Single Mean 0 -782.519 0.0001 -23.46 <.0001 275.17 0.0010
1 -666.033 0.0001 -18.20 <.0001 165.71 0.0010
2 -657.768 0.0001 -16.19 <.0001 131.07 0.0010
Trend 0 -785.005 0.0001 -23.50 <.0001 276.13 0.0010
1 -669.810 0.0001 -18.24 <.0001 166.43 0.0010
2 -663.611 0.0001 -16.24 <.0001 131.80 0.0010
225
EQUITY
STATIONARITY

Autocorrelations
0 49.608374 1.00000 | |********************| 0
1 49.393857 0.99568 | .|********************| 0.027227
2 49.230859 0.99239 | . |********************| 0.047022
3 49.103609 0.98983 | . |********************| 0.060590
4 48.938957 0.98651 | . |********************| 0.071580
5 48.778504 0.98327 | . |********************| 0.081034
6 48.626029 0.98020 | . |********************| 0.089443
7 48.478680 0.97723 | . |********************| 0.097079
8 48.337157 0.97437 | . |******************* | 0.104116
9 48.170760 0.97102 | . |******************* | 0.110670
10 48.007206 0.96772 | . |******************* | 0.116815
11 47.845624 0.96447 | . |******************* | 0.122614
12 47.671883 0.96096 | . |******************* | 0.128114
13 47.491594 0.95733 | . |******************* | 0.133350
14 47.302330 0.95352 | . |******************* | 0.138351
15 47.127856 0.95000 | . |******************* | 0.143140
16 46.976576 0.94695 | . |******************* | 0.147740
17 46.807484 0.94354 | . |******************* | 0.152173
18 46.624472 0.93985 | . |******************* | 0.156449
19 46.467639 0.93669 | . |******************* | 0.160580
20 46.311614 0.93354 | . |******************* | 0.164581
21 46.137369 0.93003 | . |******************* | 0.168460
226
Autocorrelations
22 45.982151 0.92690 | . |******************* | 0.172224
23 45.824115 0.92372 | . |****************** | 0.175883
24 45.662296 0.92046 | . |****************** | 0.179444

Zero Mean 0 -0.0224 0.6779 -0.05 0.6657
1 -0.0032 0.6823 -0.01 0.6803
2 0.0115 0.6857 0.04 0.6947
Single Mean 0 -5.1424 0.4219 -1.71 0.4235 1.49 0.6895
1 -3.9003 0.5506 -1.51 0.5266 1.17 0.7718
2 -3.1278 0.6413 -1.38 0.5920 0.99 0.8188
Trend 0 -4.4360 0.8595 -1.17 0.9157 1.51 0.8747
1 -2.4714 0.9568 -0.76 0.9679 1.40 0.8984
2 -1.2115 0.9856 -0.42 0.9867 1.54 0.8693
227
Autocorrelations
0 0.331318 1.00000 | |********************| 0
1 -0.050977 -.15386 | ***|. | 0.027237
2 -0.034881 -.10528 | **|. | 0.027874
3 0.033239 0.10032 | .|** | 0.028167
4 -0.0034228 -.01033 | .|. | 0.028431
5 -0.0092297 -.02786 | *|. | 0.028434
6 -0.0051636 -.01558 | .|. | 0.028454
7 -0.0094634 -.02856 | *|. | 0.028461
8 0.028587 0.08628 | .|** | 0.028482
9 -0.0049431 -.01492 | .|. | 0.028675
10 0.0053475 0.01614 | .|. | 0.028681
11 0.011173 0.03372 | .|* | 0.028688
12 0.0024461 0.00738 | .|. | 0.028717
13 0.0080542 0.02431 | .|. | 0.028718
14 -0.013055 -.03940 | *|. | 0.028734
15 -0.027977 -.08444 | **|. | 0.028774
16 0.019328 0.05834 | .|* | 0.028957
17 0.016059 0.04847 | .|* | 0.029044
18 -0.029514 -.08908 | **|. | 0.029104
19 0.00093307 0.00282 | .|. | 0.029306
20 0.012967 0.03914 | .|* | 0.029306
21 -0.019554 -.05902 | *|. | 0.029345
22 0.0017536 0.00529 | .|. | 0.029433
23 0.0079362 0.02395 | .|. | 0.029433
228
Autocorrelations
24 -0.011606 -.03503 | *|. | 0.029448

Zero Mean 0 -1554.27 0.0001 -42.84 <.0001
1 -2025.84 0.0001 -31.80 <.0001
2 -1630.86 0.0001 -22.50 <.0001
Single Mean 0 -1554.30 0.0001 -42.83 <.0001 917.07 0.0010
1 -2026.03 0.0001 -31.79 <.0001 505.35 0.0010
2 -1631.17 0.0001 -22.49 <.0001 252.86 0.0010
Trend 0 -1556.25 0.0001 -42.87 <.0001 919.01 0.0010
1 -2036.47 0.0001 -31.86 <.0001 507.52 0.0010
2 -1650.26 0.0001 -22.56 <.0001 254.43 0.0010
229
MODEL
CO-INTEGRATION

integration.
0 0 0.0042 7.884 15.34
1 1 0.0016 2.174 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.31869 0.02709 11.76 0.0001 CDS (t-1)
AR1_1_2 -0.34147 0.03527 -9.68 0.0001 EQ (t-1)
AR2_1_1 0.119 0.02644 4.5 0.0001 CDS (t-2)
AR2_1_2 -0.22013 0.0358 -6.15 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.00232 0.0154 0.15 0.8801 1
AR1_2_1 0.03407 0.0211 1.61 0.1066 CDS (t-1)
AR1_2_2 -0.16955 0.02746 -6.17 0.0001 EQ (t-1)
AR2_2_1 0.00446 0.02059 0.22 0.8284 CDS (t-2)
AR2_2_2 -0.11988 0.02787 -4.3 0.0001 EQ (t-2)
Table 3.3

1 2 113.84 <.0001
2 2 3.61 0.1643

230
Table 3.4
CDS 1diff 0.2448 0.72485 108.69 <.0001
EQ 1diff 0.0433 0.56442 15.18 <.0001
Table 3.5
Watson Chi Square
CDS 1diff 2.04192 9999.99 <.0001 62.95 <.0001
EQ 1diff 1.98076 3972.27 <.0001 88.29 <.0001

CDS
STATIONARITY

Autocorrelations
0 939.825 1.00000 | |********************| 0
1 936.517 0.99648 | .|********************| 0.027227
2 932.407 0.99211 | . |********************| 0.047047
3 928.440 0.98789 | . |********************| 0.060603
4 924.588 0.98379 | . |********************| 0.071551
5 920.928 0.97989 | . |********************| 0.080960
6 917.199 0.97593 | . |********************| 0.089320
7 913.548 0.97204 | . |******************* | 0.096903
231
Autocorrelations
8 909.289 0.96751 | . |******************* | 0.103880
9 904.879 0.96282 | . |******************* | 0.110357
10 900.478 0.95813 | . |******************* | 0.116418
11 895.724 0.95308 | . |******************* | 0.122124
12 890.958 0.94800 | . |******************* | 0.127518
13 886.412 0.94317 | . |******************* | 0.132640
14 882.078 0.93856 | . |******************* | 0.137521
15 877.696 0.93389 | . |******************* | 0.142190
16 873.038 0.92894 | . |******************* | 0.146667
17 868.222 0.92381 | . |****************** | 0.150965
18 863.275 0.91855 | . |****************** | 0.155099
19 858.463 0.91343 | . |****************** | 0.159081
20 853.639 0.90830 | . |****************** | 0.162922
21 848.732 0.90308 | . |****************** | 0.166634
22 844.037 0.89808 | . |****************** | 0.170223
23 839.372 0.89312 | . |****************** | 0.173700
24 834.910 0.88837 | . |****************** | 0.177071

Zero Mean 0 0.8347 0.8836 0.63 0.8521
1 0.3738 0.7749 0.23 0.7523
2 0.6588 0.8459 0.45 0.8106
232
Single Mean 0 -0.9048 0.8949 -0.39 0.9090 0.61 0.9200
1 -2.4059 0.7297 -0.83 0.8110 0.70 0.8929
2 -1.5386 0.8317 -0.59 0.8702 0.63 0.9140
Trend 0 -3.8975 0.8925 -1.33 0.8792 1.52 0.8743
1 -6.1951 0.7289 -1.70 0.7513 1.84 0.8098
2 -4.8444 0.8318 -1.49 0.8339 1.60 0.8584
233
Autocorrelations
0 3.798696 1.00000 | |********************| 0
1 0.810236 0.21329 | .|**** | 0.027237
2 -0.238015 -.06266 | *|. | 0.028449
3 -0.157488 -.04146 | *|. | 0.028551
4 -0.204482 -.05383 | *|. | 0.028596
5 -0.022999 -.00605 | .|. | 0.028671
6 -0.182041 -.04792 | *|. | 0.028672
7 0.551859 0.14528 | .|*** | 0.028731
8 0.151876 0.03998 | .|* | 0.029271
9 0.083286 0.02192 | .|. | 0.029311
10 0.450323 0.11855 | .|** | 0.029324
11 -0.058759 -.01547 | .|. | 0.029677
12 -0.329272 -.08668 | **|. | 0.029683
13 -0.296283 -.07800 | **|. | 0.029870
14 -0.115810 -.03049 | *|. | 0.030021
15 0.191880 0.05051 | .|* | 0.030044
16 0.118444 0.03118 | .|* | 0.030107
17 0.132146 0.03479 | .|* | 0.030131
18 -0.169679 -.04467 | *|. | 0.030160
19 -0.052144 -.01373 | .|. | 0.030209
20 -0.027704 -.00729 | .|. | 0.030214
21 -0.101196 -.02664 | *|. | 0.030215
22 0.0090787 0.00239 | .|. | 0.030233
23 -0.089485 -.02356 | .|. | 0.030233
234
Autocorrelations
24 -0.0015458 -.00041 | .|. | 0.030247

Zero Mean 0 -1058.84 0.0001 -29.52 <.0001
1 -1327.23 0.0001 -25.74 <.0001
2 -1333.56 0.0001 -21.09 <.0001
Single Mean 0 -1059.69 0.0001 -29.53 <.0001 436.12 0.0010
1 -1329.91 0.0001 -25.76 <.0001 331.72 0.0010
2 -1338.97 0.0001 -21.11 <.0001 222.74 0.0010
Trend 0 -1060.65 0.0001 -29.54 <.0001 436.44 0.0010
1 -1332.98 0.0001 -25.78 <.0001 332.20 0.0010
2 -1345.32 0.0001 -21.13 <.0001 223.26 0.0010
235
EQUITY
STATIONARITY

Autocorrelations
0 44.844663 1.00000 | |********************| 0
1 44.647222 0.99560 | .|********************| 0.027227
2 44.488345 0.99205 | . |********************| 0.047020
3 44.353527 0.98905 | . |********************| 0.060580
4 44.186297 0.98532 | . |********************| 0.071556
5 44.027244 0.98177 | . |********************| 0.080991
6 43.872389 0.97832 | . |********************| 0.089379
7 43.723788 0.97501 | . |********************| 0.096993
8 43.579815 0.97179 | . |******************* | 0.104005
9 43.420151 0.96823 | . |******************* | 0.110531
10 43.256329 0.96458 | . |******************* | 0.116649
11 43.099049 0.96107 | . |******************* | 0.122419
12 42.930035 0.95731 | . |******************* | 0.127890
13 42.762244 0.95356 | . |******************* | 0.133096
14 42.584697 0.94960 | . |******************* | 0.138067
15 42.418048 0.94589 | . |******************* | 0.142827
16 42.269451 0.94257 | . |******************* | 0.147397
17 42.100513 0.93881 | . |******************* | 0.151800
18 41.920663 0.93480 | . |******************* | 0.156044
19 41.761996 0.93126 | . |******************* | 0.160142
20 41.603973 0.92774 | . |******************* | 0.164107
21 41.436278 0.92400 | . |****************** | 0.167950
236
Autocorrelations
22 41.280537 0.92052 | . |****************** | 0.171677
23 41.114605 0.91682 | . |****************** | 0.175298
24 40.948170 0.91311 | . |****************** | 0.178817

Zero Mean 0 -0.0683 0.6674 -0.15 0.6311
1 -0.0492 0.6718 -0.13 0.6407
2 -0.0348 0.6751 -0.10 0.6500
Single Mean 0 -4.6507 0.4699 -1.58 0.4929 1.25 0.7503
1 -3.6052 0.5845 -1.40 0.5867 0.98 0.8211
2 -2.9869 0.6585 -1.28 0.6414 0.82 0.8603
Trend 0 -3.2510 0.9260 -0.94 0.9500 1.54 0.8686
1 -1.8202 0.9745 -0.60 0.9785 1.59 0.8587
2 -0.9375 0.9891 -0.34 0.9894 1.82 0.8138
237
Autocorrelations
0 0.288279 1.00000 | |********************| 0
1 -0.038134 -.13228 | ***|. | 0.027237
2 -0.024430 -.08474 | **|. | 0.027709
3 0.028743 0.09971 | .|** | 0.027901
4 -0.0066580 -.02310 | .|. | 0.028164
5 -0.0052689 -.01828 | .|. | 0.028178
6 -0.0077020 -.02672 | *|. | 0.028187
7 -0.0058400 -.02026 | .|. | 0.028206
8 0.019035 0.06603 | .|* | 0.028216
9 0.00059994 0.00208 | .|. | 0.028331
10 0.00073779 0.00256 | .|. | 0.028331
11 0.010828 0.03756 | .|* | 0.028331
12 -0.0053395 -.01852 | .|. | 0.028368
13 0.010252 0.03556 | .|* | 0.028377
14 -0.0087579 -.03038 | *|. | 0.028410
15 -0.025992 -.09016 | **|. | 0.028434
16 0.019273 0.06685 | .|* | 0.028645
17 0.013756 0.04772 | .|* | 0.028761
18 -0.022627 -.07849 | **|. | 0.028820
19 -0.0016696 -.00579 | .|. | 0.028978
20 0.0090012 0.03122 | .|* | 0.028979
21 -0.013082 -.04538 | *|. | 0.029003
22 0.0082303 0.02855 | .|* | 0.029056
23 0.0046544 0.01615 | .|. | 0.029077
24 -0.0046967 -.01629 | .|. | 0.029084
238
Zero Mean 0 -1525.19 0.0001 -41.91 <.0001
1 -1878.12 0.0001 -30.62 <.0001
2 -1468.18 0.0001 -21.76 <.0001
Single Mean 0 -1525.20 0.0001 -41.89 <.0001 877.60 0.0010
1 -1878.15 0.0001 -30.61 <.0001 468.47 0.0010
2 -1468.22 0.0001 -21.75 <.0001 236.54 0.0010
Trend 0 -1527.71 0.0001 -41.96 <.0001 880.20 0.0010
1 -1890.31 0.0001 -30.70 <.0001 471.10 0.0010
2 -1488.51 0.0001 -21.84 <.0001 238.39 0.0010
239
MODEL
CO-INTEGRATION

integration.
0 0 0.0044 6.8841 15.34
1 1 0.0007 0.9235 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.21157 0.02696 7.85 0.0001 CDS (t-1)
AR1_1_2 -0.35312 0.09614 -3.67 0.0002 EQ (t-1)
AR2_1_1 -0.1243 0.02678 -4.64 0.0001 CDS (t-2)
AR2_1_2 -0.62769 0.09631 -6.52 0.0001 EQ (t-2)
EQ 1 diff Constant2 0.00031 0.01442 0.02 0.9828 1
AR1_2_1 -0.00471 0.00765 -0.62 0.5381 CDS (t-1)
AR1_2_2 -0.14933 0.0273 -5.47 0.0001 EQ (t-1)
AR2_2_1 0.02337 0.0076 3.07 0.0022 CDS (t-2)
AR2_2_2 -0.09689 0.02735 -3.54 0.0004 EQ (t-2)
Table 3.3

1 2 50.21 <.0001
2 2 9.45 0.0089

240
Table 3.4
CDS 1diff 0.0918 1.86208 33.87 <.0001
EQ 1diff 0.0349 0.52879 12.14 <.0001
Table 3.5
Watson Chi Square
CDS 1diff 2.03305 9999.99 <.0001 4.21 0.0405
EQ 1diff 1.98825 2358.18 <.0001 39.46 <.0001
241
CDS
STATIONARITY

Autocorrelations
0 3409.107 1.00000 | |********************| 0
1 3402.557 0.99808 | .|********************| 0.027227
2 3393.563 0.99544 | . |********************| 0.047098
3 3383.231 0.99241 | . |********************| 0.060723
4 3372.171 0.98917 | . |********************| 0.071746
5 3361.035 0.98590 | . |********************| 0.081228
6 3349.329 0.98247 | . |********************| 0.089661
7 3337.303 0.97894 | . |********************| 0.097315
8 3324.990 0.97533 | . |********************| 0.104360
9 3312.776 0.97174 | . |******************* | 0.110911
10 3300.526 0.96815 | . |******************* | 0.117052
11 3287.869 0.96444 | . |******************* | 0.122845
12 3274.532 0.96052 | . |******************* | 0.128335
13 3260.739 0.95648 | . |******************* | 0.133558
14 3246.757 0.95238 | . |******************* | 0.138543
15 3232.481 0.94819 | . |******************* | 0.143314
16 3217.700 0.94385 | . |******************* | 0.147891
17 3202.649 0.93944 | . |******************* | 0.152291
18 3187.350 0.93495 | . |******************* | 0.156528
19 3171.853 0.93041 | . |******************* | 0.160614
242
Autocorrelations
20 3156.258 0.92583 | . |******************* | 0.164561
21 3140.903 0.92133 | . |****************** | 0.168378
22 3125.992 0.91695 | . |****************** | 0.172074
23 3111.173 0.91261 | . |****************** | 0.175659
24 3096.307 0.90825 | . |****************** | 0.179139

Zero Mean 0 1.2285 0.9436 1.29 0.9505
1 0.4587 0.7967 0.30 0.7721
2 0.5406 0.8174 0.36 0.7888
Single Mean 0 0.3575 0.9727 0.25 0.9756 1.16 0.7736
1 -1.3185 0.8551 -0.57 0.8745 0.58 0.9289
2 -1.1778 0.8693 -0.52 0.8842 0.59 0.9248
Trend 0 -1.8646 0.9735 -0.99 0.9433 1.70 0.8374
1 -4.7262 0.8400 -1.56 0.8071 1.68 0.8412
2 -4.4411 0.8592 -1.51 0.8268 1.60 0.8567
243
Autocorrelations
0 5.171733 1.00000 | |********************| 0
1 2.288622 0.44253 | .|********* | 0.027237
2 0.892617 0.17260 | .|*** | 0.032131
3 0.385088 0.07446 | .|* | 0.032811
4 0.048013 0.00928 | .|. | 0.032936
5 0.126094 0.02438 | .|. | 0.032938
6 -0.089364 -.01728 | .|. | 0.032952
7 0.034853 0.00674 | .|. | 0.032959
8 0.014309 0.00277 | .|. | 0.032960
9 0.331227 0.06405 | .|* | 0.032960
10 0.541578 0.10472 | .|** | 0.033052
11 0.296426 0.05732 | .|* | 0.033297
12 0.046212 0.00894 | .|. | 0.033370
13 -0.300704 -.05814 | *|. | 0.033372
14 -0.262967 -.05085 | *|. | 0.033447
15 0.166807 0.03225 | .|* | 0.033504
16 0.157594 0.03047 | .|* | 0.033527
17 0.261354 0.05054 | .|* | 0.033548
18 -0.0047610 -.00092 | .|. | 0.033604
19 -0.173335 -.03352 | *|. | 0.033604
20 -0.239515 -.04631 | *|. | 0.033629
21 -0.208829 -.04038 | *|. | 0.033676
22 0.068947 0.01333 | .|. | 0.033712
23 0.197183 0.03813 | .|* | 0.033716
244
Autocorrelations
24 0.331658 0.06413 | .|* | 0.033748

Zero Mean 0 -749.227 0.0001 -22.76 <.0001
1 -790.919 0.0001 -19.84 <.0001
2 -766.433 0.0001 -17.19 <.0001
Single Mean 0 -750.478 0.0001 -22.78 <.0001 259.46 0.0010
1 -793.425 0.0001 -19.86 <.0001 197.17 0.0010
2 -770.322 0.0001 -17.22 <.0001 148.22 0.0010
Trend 0 -751.856 0.0001 -22.80 <.0001 259.90 0.0010
1 -796.168 0.0001 -19.88 <.0001 197.63 0.0010
2 -774.769 0.0001 -17.24 <.0001 148.68 0.0010
245
EQUITY
STATIONARITY

Autocorrelations
0 60.148607 1.00000 | |********************| 0
1 59.907426 0.99599 | .|********************| 0.027227
2 59.694891 0.99246 | . |********************| 0.047032
3 59.502837 0.98926 | . |********************| 0.060600
4 59.292962 0.98577 | . |********************| 0.071577
5 59.089419 0.98239 | . |********************| 0.081018
6 58.889341 0.97906 | . |********************| 0.089413
7 58.682918 0.97563 | . |********************| 0.097036
8 58.480458 0.97227 | . |******************* | 0.104053
9 58.264682 0.96868 | . |******************* | 0.110583
10 58.051485 0.96513 | . |******************* | 0.116704
11 57.839884 0.96162 | . |******************* | 0.122478
12 57.620700 0.95797 | . |******************* | 0.127952
13 57.387854 0.95410 | . |******************* | 0.133163
14 57.144967 0.95006 | . |******************* | 0.138137
15 56.905296 0.94608 | . |******************* | 0.142899
16 56.680814 0.94235 | . |******************* | 0.147469
17 56.432884 0.93822 | . |******************* | 0.151867
18 56.173068 0.93390 | . |******************* | 0.156105
19 55.932752 0.92991 | . |******************* | 0.160193
20 55.689769 0.92587 | . |******************* | 0.164146
21 55.439945 0.92172 | . |****************** | 0.167972
246
Autocorrelations
22 55.201929 0.91776 | . |****************** | 0.171681
23 54.948562 0.91355 | . |****************** | 0.175280
24 54.699534 0.90941 | . |****************** | 0.178775

Zero Mean 0 -0.1361 0.6520 -0.30 0.5783
1 -0.1251 0.6545 -0.30 0.5786
2 -0.1169 0.6564 -0.30 0.5783
Single Mean 0 -3.2369 0.6282 -1.21 0.6729 0.74 0.8829
1 -2.6587 0.6987 -1.08 0.7269 0.59 0.9262
2 -2.2313 0.7510 -0.97 0.7666 0.48 0.9574
Trend 0 -2.4252 0.9582 -0.89 0.9556 1.93 0.7916
1 -1.8251 0.9744 -0.73 0.9702 2.02 0.7715
2 -1.3785 0.9830 -0.59 0.9791 2.17 0.7416
247
Autocorrelations
0 0.319006 1.00000 | |********************| 0
1 -0.026180 -.08207 | **|. | 0.027237
2 -0.020171 -.06323 | *|. | 0.027420
3 0.015082 0.04728 | .|* | 0.027528
4 -0.0049749 -.01560 | .|. | 0.027588
5 -0.0022632 -.00709 | .|. | 0.027594
6 0.00021297 0.00067 | .|. | 0.027596
7 -0.0054037 -.01694 | .|. | 0.027596
8 0.013583 0.04258 | .|* | 0.027603
9 -0.0062445 -.01957 | .|. | 0.027652
10 0.0089357 0.02801 | .|* | 0.027662
11 0.0056597 0.01774 | .|. | 0.027683
12 0.0085449 0.02679 | .|* | 0.027692
13 0.0093567 0.02933 | .|* | 0.027711
14 0.0022251 0.00698 | .|. | 0.027734
15 -0.025174 -.07891 | **|. | 0.027735
16 0.020368 0.06385 | .|* | 0.027901
17 0.017208 0.05394 | .|* | 0.028010
18 -0.020363 -.06383 | *|. | 0.028086
19 0.0014855 0.00466 | .|. | 0.028194
20 0.00006288 0.00020 | .|. | 0.028194
21 -0.016675 -.05227 | *|. | 0.028194
22 0.013098 0.04106 | .|* | 0.028266
23 0.0015955 0.00500 | .|. | 0.028310
24 -0.0056807 -.01781 | .|. | 0.028311
248
Zero Mean 0 -1457.53 0.0001 -39.84 <.0001
1 -1677.45 0.0001 -28.94 <.0001
2 -1493.55 0.0001 -21.89 <.0001
Single Mean 0 -1457.54 0.0001 -39.82 <.0001 792.91 0.0010
1 -1677.50 0.0001 -28.93 <.0001 418.60 0.0010
2 -1493.67 0.0001 -21.88 <.0001 239.42 0.0010
Trend 0 -1460.81 0.0001 -39.90 <.0001 796.16 0.0010
1 -1690.79 0.0001 -29.04 <.0001 421.53 0.0010
2 -1518.89 0.0001 -21.99 <.0001 241.75 0.0010
249
MODEL
CO-INTEGRATION

integration.
0 0 0.0039 5.6938 15.34
1 1 0.0003 0.4602 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.36708 0.02727 13.46 0.0001 CDS (t-1)
AR1_1_2 -1.19504 0.09395 -12.72 0.0001 EQ (t-1)
AR2_1_1 0.01132 0.02586 0.44 0.6616 CDS (t-2)
AR2_1_2 -0.57607 0.09845 -5.85 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00275 0.01536 -0.18 0.8578 1
AR1_2_1 0.00084 0.008 0.11 0.9161 CDS (t-1)
AR1_2_2 -0.08849 0.02756 -3.21 0.0014 EQ (t-1)
AR2_2_1 0.00586 0.00759 0.77 0.4401 CDS (t-2)
AR2_2_2 -0.0674 0.02888 -2.33 0.0197 EQ (t-2)
Table 3.3

1 2 180.54 <.0001
2 2 0.85 0.6539

250
Table 3.4
CDS 1diff 0.292 1.91835 138.28 <.0001
EQ 1diff 0.0123 0.56269 4.18 0.0023
Table 3.5
Watson Chi Square
CDS 1diff 2.00981 9999.99 <.0001 83.55 <.0001
EQ 1diff 1.99412 1357.09 <.0001 19.13 <.0001
251
CDS
STATIONARITY

Autocorrelations
0 11327.099 1.00000 | |********************| 0
1 11292.506 0.99695 | .|********************| 0.027227
2 11248.312 0.99304 | . |********************| 0.047062
3 11201.366 0.98890 | . |********************| 0.060637
4 11152.874 0.98462 | . |********************| 0.071601
5 11103.849 0.98029 | . |********************| 0.081019
6 11053.195 0.97582 | . |********************| 0.089380
7 11001.750 0.97128 | . |******************* | 0.096956
8 10952.574 0.96694 | . |******************* | 0.103919
9 10906.185 0.96284 | . |******************* | 0.110387
10 10860.145 0.95878 | . |******************* | 0.116446
11 10811.359 0.95447 | . |******************* | 0.122158
12 10759.727 0.94991 | . |******************* | 0.127567
13 10706.245 0.94519 | . |******************* | 0.132706
14 10651.147 0.94032 | . |******************* | 0.137606
15 10594.302 0.93531 | . |******************* | 0.142290
16 10531.457 0.92976 | . |******************* | 0.146777
17 10461.207 0.92356 | . |****************** | 0.151079
18 10390.410 0.91731 | . |****************** | 0.155208
19 10318.778 0.91098 | . |****************** | 0.159176
252
Autocorrelations
20 10245.692 0.90453 | . |****************** | 0.162995
21 10171.625 0.89799 | . |****************** | 0.166675
22 10099.162 0.89159 | . |****************** | 0.170223
23 10031.251 0.88560 | . |****************** | 0.173651
24 9966.067 0.87984 | . |****************** | 0.176967

Zero Mean 0 1.9642 0.9880 1.72 0.9799
1 1.1626 0.9358 0.69 0.8645
2 1.5662 0.9718 1.07 0.9260
Single Mean 0 1.4090 0.9942 0.86 0.9950 1.60 0.6620
1 -0.2591 0.9432 -0.11 0.9469 0.57 0.9300
2 0.5335 0.9784 0.25 0.9758 0.80 0.8656
Trend 0 -1.0972 0.9871 -0.55 0.9813 2.73 0.6289
1 -3.4530 0.9163 -1.17 0.9148 1.78 0.8208
2 -2.3167 0.9616 -0.90 0.9542 1.90 0.7962
253
Autocorrelations
0 22.444984 1.00000 | |********************| 0
1 8.266438 0.36830 | .|******* | 0.027237
2 0.369527 0.01646 | .|. | 0.030710
3 0.630405 0.02809 | .|* | 0.030716
4 0.921542 0.04106 | .|* | 0.030735
5 1.101543 0.04908 | .|* | 0.030776
6 -0.485999 -.02165 | .|. | 0.030834
7 -2.403179 -.10707 | **|. | 0.030845
8 -1.677017 -.07472 | *|. | 0.031120
9 1.284469 0.05723 | .|* | 0.031253
10 3.461288 0.15421 | .|*** | 0.031330
11 0.910641 0.04057 | .|* | 0.031888
12 -0.261202 -.01164 | .|. | 0.031927
13 -0.406072 -.01809 | .|. | 0.031930
14 -0.767317 -.03419 | *|. | 0.031937
15 1.624650 0.07238 | .|* | 0.031965
16 2.868850 0.12782 | .|*** | 0.032086
17 0.849502 0.03785 | .|* | 0.032461
18 -0.090472 -.00403 | .|. | 0.032494
19 0.857432 0.03820 | .|* | 0.032495
20 0.393329 0.01752 | .|. | 0.032528
21 -0.811579 -.03616 | *|. | 0.032535
22 -1.806075 -.08047 | **|. | 0.032565
23 -0.931477 -.04150 | *|. | 0.032712
254
Autocorrelations
24 -0.051896 -.00231 | .|. | 0.032751

Zero Mean 0 -848.525 0.0001 -24.86 <.0001
1 -1116.85 0.0001 -23.56 <.0001
2 -880.501 0.0001 -18.13 <.0001
Single Mean 0 -850.118 0.0001 -24.88 <.0001 309.63 0.0010
1 -1121.45 0.0001 -23.59 <.0001 278.36 0.0010
2 -886.547 0.0001 -18.17 <.0001 164.99 0.0010
Trend 0 -853.348 0.0001 -24.94 <.0001 311.00 0.0010
1 -1130.88 0.0001 -23.68 <.0001 280.26 0.0010
2 -899.012 0.0001 -18.24 <.0001 166.41 0.0010
255
EQUITY
STATIONARITY

Autocorrelations
0 63.889123 1.00000 | |********************| 0
1 63.660551 0.99642 | .|********************| 0.027227
2 63.446510 0.99307 | . |********************| 0.047046
3 63.247145 0.98995 | . |********************| 0.060625
4 63.019905 0.98639 | . |********************| 0.071612
5 62.796971 0.98291 | . |********************| 0.081061
6 62.582782 0.97955 | . |********************| 0.089460
7 62.364244 0.97613 | . |********************| 0.097086
8 62.145482 0.97271 | . |******************* | 0.104108
9 61.912686 0.96906 | . |******************* | 0.110640
10 61.667046 0.96522 | . |******************* | 0.116762
11 61.431077 0.96153 | . |******************* | 0.122534
12 61.180835 0.95761 | . |******************* | 0.128005
13 60.920578 0.95354 | . |******************* | 0.133210
14 60.647591 0.94926 | . |******************* | 0.138177
15 60.384459 0.94514 | . |******************* | 0.142930
16 60.127727 0.94113 | . |******************* | 0.147490
17 59.842956 0.93667 | . |******************* | 0.151876
18 59.545589 0.93201 | . |******************* | 0.156100
19 59.252232 0.92742 | . |******************* | 0.160172
20 58.957161 0.92280 | . |****************** | 0.164104
21 58.653168 0.91805 | . |****************** | 0.167907
256
Autocorrelations
22 58.352582 0.91334 | . |****************** | 0.171587
23 58.036853 0.90840 | . |****************** | 0.175154
24 57.733683 0.90365 | . |****************** | 0.178612

Zero Mean 0 -0.3621 0.6007 -0.73 0.4011
1 -0.3584 0.6015 -0.77 0.3840
2 -0.3447 0.6046 -0.79 0.3760
Single Mean 0 -0.8789 0.8972 -0.37 0.9113 0.29 0.9900
1 -0.5275 0.9253 -0.24 0.9311 0.30 0.9900
2 -0.2340 0.9447 -0.11 0.9463 0.31 0.9883
Trend 0 -1.7256 0.9766 -0.72 0.9707 1.83 0.8107
1 -1.3360 0.9837 -0.59 0.9789 1.88 0.8003
2 -1.0278 0.9880 -0.49 0.9841 2.07 0.7615
257
Autocorrelations
0 0.262058 1.00000 | |********************| 0
1 -0.016326 -.06230 | *|. | 0.027237
2 -0.015489 -.05910 | *|. | 0.027342
3 0.019298 0.07364 | .|* | 0.027437
4 -0.0015903 -.00607 | .|. | 0.027583
5 -0.0039281 -.01499 | .|. | 0.027584
6 -0.0032804 -.01252 | .|. | 0.027590
7 -0.0037095 -.01416 | .|. | 0.027594
8 0.014564 0.05558 | .|* | 0.027600
9 0.0051635 0.01970 | .|. | 0.027683
10 0.0048379 0.01846 | .|. | 0.027693
11 0.010887 0.04154 | .|* | 0.027702
12 0.0046501 0.01774 | .|. | 0.027748
13 0.010457 0.03990 | .|* | 0.027757
14 -0.0024690 -.00942 | .|. | 0.027799
15 -0.020638 -.07875 | **|. | 0.027802
16 0.023426 0.08939 | .|** | 0.027967
17 0.017917 0.06837 | .|* | 0.028178
18 -0.0049409 -.01885 | .|. | 0.028301
19 -0.0028220 -.01077 | .|. | 0.028310
20 -0.0005105 -.00195 | .|. | 0.028313
21 -0.0082415 -.03145 | *|. | 0.028313
22 0.011737 0.04479 | .|* | 0.028339
23 -0.0019900 -.00759 | .|. | 0.028391
258
Autocorrelations
24 -0.0020338 -.00776 | .|. | 0.028393

Zero Mean 0 -1430.43 0.0001 -39.04 <.0001
1 -1620.96 0.0001 -28.45 <.0001
2 -1317.88 0.0001 -21.00 <.0001
Single Mean 0 -1430.93 0.0001 -39.04 <.0001 762.25 0.0010
1 -1622.92 0.0001 -28.46 <.0001 404.86 0.0010
2 -1321.19 0.0001 -21.01 <.0001 220.62 0.0010
Trend 0 -1434.25 0.0001 -39.12 <.0001 765.32 0.0010
1 -1635.85 0.0001 -28.55 <.0001 407.69 0.0010
2 -1342.31 0.0001 -21.10 <.0001 222.68 0.0010
259
MODEL
CO-INTEGRATION

integration.
0 0 0.0043 5.8276 15.34
1 1 0.0001 0.0943 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.341 0.02736 12.46 0.0001 CDS (t-1)
AR1_1_2 -2.91174 0.22259 -13.08 0.0001 EQ (t-1)
AR2_1_1 -0.09187 0.02572 -3.57 0.0004 CDS (t-2)
AR2_1_2 -0.88628 0.23471 -3.78 0.0002 EQ (t-2)
EQ 1 diff Constant2 -0.01102 0.01391 -0.79 0.4285 1
AR1_2_1 0.00906 0.00339 2.67 0.0076 CDS (t-1)
AR1_2_2 -0.05236 0.02759 -1.9 0.0579 EQ (t-1)
AR2_2_1 -0.00645 0.00319 -2.02 0.0432 CDS (t-2)
AR2_2_2 -0.03867 0.02909 -1.33 0.1841 EQ (t-2)
Table 3.3

1 2 176.88 <.0001
2 2 8.37 0.0152

260
Table 3.4
CDS 1diff 0.2509 4.10995 112.29 <.0001
EQ 1diff 0.014 0.50947 4.77 0.0008
Table 3.5
Watson Chi Square
CDS 1diff 1.99664 9999.99 <.0001 62.06 <.0001
EQ 1diff 1.9918 654.28 <.0001 16.84 <.0001
261
Appendix 24 – High yield QUARTILE 1
CDS
STATIONARITY

Autocorrelations
0 7511.242 1.00000 | |********************| 0
1 7500.041 0.99851 | .|********************| 0.027227
2 7481.705 0.99607 | . |********************| 0.047111
3 7458.275 0.99295 | . |********************| 0.060749
4 7432.324 0.98949 | . |********************| 0.071778
5 7405.379 0.98591 | . |********************| 0.081263
6 7376.989 0.98213 | . |********************| 0.089693
7 7347.556 0.97821 | . |********************| 0.097339
8 7317.153 0.97416 | . |******************* | 0.104372
9 7286.253 0.97005 | . |******************* | 0.110908
10 7254.185 0.96578 | . |******************* | 0.117028
11 7219.722 0.96119 | . |******************* | 0.122794
12 7183.941 0.95643 | . |******************* | 0.128250
13 7147.503 0.95157 | . |******************* | 0.133433
14 7111.885 0.94683 | . |******************* | 0.138372
15 7077.137 0.94221 | . |******************* | 0.143094
16 7042.444 0.93759 | . |******************* | 0.147621
17 7007.723 0.93296 | . |******************* | 0.151972
18 6972.435 0.92827 | . |******************* | 0.156160
19 6937.516 0.92362 | . |****************** | 0.160198
262
Autocorrelations
20 6902.524 0.91896 | . |****************** | 0.164098
21 6868.094 0.91438 | . |****************** | 0.167869
22 6835.555 0.91004 | . |****************** | 0.171522
23 6804.287 0.90588 | . |****************** | 0.175064
24 6772.682 0.90167 | . |****************** | 0.178505

Zero Mean 0 -0.0352 0.6750 -0.03 0.6724
1 -0.7192 0.5247 -0.45 0.5177
2 -1.0858 0.4585 -0.60 0.4560
Single Mean 0 -1.6961 0.8141 -0.92 0.7810 0.62 0.9152
1 -3.7183 0.5714 -1.37 0.5990 1.03 0.8077
2 -4.8598 0.4490 -1.57 0.4965 1.31 0.7349
Trend 0 -3.6050 0.9086 -1.34 0.8783 0.89 0.9792
1 -7.8572 0.5953 -1.96 0.6203 1.93 0.7904
2 -10.0751 0.4311 -2.21 0.4853 2.44 0.6874
263
Autocorrelations
0 18.760912 1.00000 | |********************| 0
1 6.960842 0.37103 | .|******* | 0.027237
2 4.611080 0.24578 | .|***** | 0.030759
3 2.371473 0.12640 | .|*** | 0.032183
4 0.947983 0.05053 | .|* | 0.032549
5 0.972947 0.05186 | .|* | 0.032607
6 0.671858 0.03581 | .|* | 0.032668
7 0.636583 0.03393 | .|* | 0.032697
8 0.434368 0.02315 | .|. | 0.032723
9 1.206442 0.06431 | .|* | 0.032735
10 2.528536 0.13478 | .|*** | 0.032829
11 0.980040 0.05224 | .|* | 0.033237
12 0.197468 0.01053 | .|. | 0.033298
13 -1.214275 -.06472 | *|. | 0.033300
14 -1.316276 -.07016 | *|. | 0.033393
15 -0.523750 -.02792 | *|. | 0.033503
16 -0.128012 -.00682 | .|. | 0.033520
17 0.538912 0.02873 | .|* | 0.033521
18 -0.494296 -.02635 | *|. | 0.033539
19 -0.081449 -.00434 | .|. | 0.033554
20 -0.437197 -.02330 | .|. | 0.033555
21 -1.622783 -.08650 | **|. | 0.033567
22 -1.151821 -.06139 | *|. | 0.033732
23 0.438625 0.02338 | .|. | 0.033815
264
Autocorrelations
24 0.881303 0.04698 | .|* | 0.033827

Zero Mean 0 -846.762 0.0001 -24.84 <.0001
1 -656.117 0.0001 -18.08 <.0001
2 -654.571 0.0001 -16.17 <.0001
Single Mean 0 -847.016 0.0001 -24.83 <.0001 308.29 0.0010
1 -656.514 0.0001 -18.08 <.0001 163.42 0.0010
2 -655.170 0.0001 -16.17 <.0001 130.78 0.0010
Trend 0 -847.015 0.0001 -24.82 <.0001 308.07 0.0010
1 -656.501 0.0001 -18.07 <.0001 163.31 0.0010
2 -655.147 0.0001 -16.17 <.0001 130.68 0.0010
265
EQUITY
STATIONARITY

Autocorrelations
0 35.457634 1.00000 | |********************| 0
1 35.356951 0.99716 | .|********************| 0.027227
2 35.257364 0.99435 | . |********************| 0.047069
3 35.163974 0.99172 | . |********************| 0.060674
4 35.058019 0.98873 | . |********************| 0.071690
5 34.951731 0.98573 | . |********************| 0.081172
6 34.846329 0.98276 | . |********************| 0.089607
7 34.737026 0.97968 | . |********************| 0.097269
8 34.624533 0.97650 | . |********************| 0.104327
9 34.508339 0.97323 | . |******************* | 0.110896
10 34.387545 0.96982 | . |******************* | 0.117056
11 34.270569 0.96652 | . |******************* | 0.122868
12 34.146322 0.96302 | . |******************* | 0.128381
13 34.017567 0.95939 | . |******************* | 0.133628
14 33.886009 0.95568 | . |******************* | 0.138640
15 33.757680 0.95206 | . |******************* | 0.143441
16 33.630633 0.94847 | . |******************* | 0.148051
17 33.495637 0.94467 | . |******************* | 0.152489
18 33.362426 0.94091 | . |******************* | 0.156767
19 33.225082 0.93704 | . |******************* | 0.160899
20 33.084517 0.93307 | . |******************* | 0.164894
21 32.944227 0.92912 | . |******************* | 0.168763
266
Autocorrelations
22 32.808166 0.92528 | . |******************* | 0.172513
23 32.666047 0.92127 | . |****************** | 0.176153
24 32.524969 0.91729 | . |****************** | 0.179690

Zero Mean 0 -0.3815 0.5963 -0.81 0.3665
1 -0.3894 0.5946 -0.83 0.3555
2 -0.3783 0.5970 -0.87 0.3411
Single Mean 0 -0.9024 0.8951 -0.41 0.9043 0.36 0.9814
1 -0.8495 0.8997 -0.39 0.9078 0.37 0.9792
2 -0.5493 0.9237 -0.27 0.9265 0.38 0.9780
Trend 0 -3.6489 0.9063 -1.42 0.8558 2.06 0.7646
1 -3.5113 0.9134 -1.38 0.8672 1.97 0.7826
2 -3.0804 0.9337 -1.29 0.8890 2.00 0.7771
267
Autocorrelations
0 0.124150 1.00000 | |********************| 0
1 -0.0012972 -.01045 | .|. | 0.027237
2 -0.0083755 -.06746 | *|. | 0.027240
3 0.0083042 0.06689 | .|* | 0.027363
4 0.0017225 0.01387 | .|. | 0.027484
5 0.0013413 0.01080 | .|. | 0.027490
6 -0.0002762 -.00222 | .|. | 0.027493
7 0.00046627 0.00376 | .|. | 0.027493
8 0.0021695 0.01748 | .|. | 0.027493
9 0.0013204 0.01064 | .|. | 0.027502
10 0.00020920 0.00169 | .|. | 0.027505
11 0.0055332 0.04457 | .|* | 0.027505
12 0.00083788 0.00675 | .|. | 0.027558
13 0.0020005 0.01611 | .|. | 0.027559
14 -0.0002371 -.00191 | .|. | 0.027566
15 -0.0074222 -.05978 | *|. | 0.027566
16 0.0062582 0.05041 | .|* | 0.027662
17 0.0011039 0.00889 | .|. | 0.027731
18 0.0066736 0.05375 | .|* | 0.027733
19 0.0015350 0.01236 | .|. | 0.027810
20 -0.0041110 -.03311 | *|. | 0.027814
21 -0.0063512 -.05116 | *|. | 0.027843
22 0.0040707 0.03279 | .|* | 0.027913
23 0.0028116 0.02265 | .|. | 0.027941
268
Autocorrelations
24 -0.0012224 -.00985 | .|. | 0.027955

Zero Mean 0 -1360.51 0.0001 -37.07 <.0001
1 -1555.44 0.0001 -27.87 <.0001
2 -1269.89 0.0001 -20.73 <.0001
Single Mean 0 -1361.08 0.0001 -37.07 <.0001 687.07 0.0010
1 -1557.60 0.0001 -27.88 <.0001 388.59 0.0010
2 -1273.47 0.0001 -20.74 <.0001 215.10 0.0010
Trend 0 -1363.16 0.0001 -37.11 <.0001 688.63 0.0010
1 -1565.30 0.0001 -27.93 <.0001 390.13 0.0010
2 -1285.92 0.0001 -20.80 <.0001 216.25 0.0010
269
MODEL
CO-INTEGRATION

integration.
0 0 0.007 9.6759 15.34
1 1 0.0002 0.2709 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.27135 0.02701 10.05 0.0001 CDS (t-1)
AR1_1_2 -2.52039 0.30161 -8.36 0.0001 EQ (t-1)
AR2_1_1 0.13491 0.0263 5.13 0.0001 CDS (t-2)
AR2_1_2 -1.4798 0.30795 -4.81 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00775 0.0096 -0.81 0.42 1
AR1_2_1 0.00027 0.00246 0.11 0.9113 CDS (t-1)
AR1_2_2 -0.01073 0.02744 -0.39 0.6957 EQ (t-1)
AR2_2_1 -0.00289 0.00239 -1.21 0.2265 CDS (t-2)
AR2_2_2 -0.07058 0.02801 -2.52 0.0119 EQ (t-2)
Table 3.3

1 2 90.2 <.0001
2 2 1.59 0.4526

270
Table 3.4
CDS 1diff 0.2049 3.87107 86.37 <.0001
EQ 1diff 0.0059 0.35212 1.98 0.0958
Table 3.5
Watson Chi Square
CDS 1diff 2.00789 9999.99 <.0001 26.68 <.0001
EQ 1diff 1.99178 173.71 <.0001 6.76 0.0094
271
CDS
STATIONARITY

Autocorrelations
0 40654.840 1.00000 | |********************| 0
1 40587.907 0.99835 | .|********************| 0.027227
2 40501.111 0.99622 | . |********************| 0.047106
3 40393.185 0.99356 | . |********************| 0.060749
4 40275.889 0.99068 | . |********************| 0.071791
5 40155.150 0.98771 | . |********************| 0.081296
6 40031.031 0.98466 | . |********************| 0.089752
7 39901.884 0.98148 | . |********************| 0.097431
8 39767.784 0.97818 | . |********************| 0.104503
9 39631.328 0.97482 | . |******************* | 0.111084
10 39495.327 0.97148 | . |******************* | 0.117254
11 39354.948 0.96803 | . |******************* | 0.123076
12 39206.516 0.96438 | . |******************* | 0.128596
13 39053.007 0.96060 | . |******************* | 0.133850
14 38898.231 0.95679 | . |******************* | 0.138866
15 38741.388 0.95293 | . |******************* | 0.143670
16 38581.419 0.94900 | . |******************* | 0.148281
17 38416.564 0.94494 | . |******************* | 0.152717
18 38250.884 0.94087 | . |******************* | 0.156992
19 38085.678 0.93681 | . |******************* | 0.161117
272
Autocorrelations
20 37921.030 0.93276 | . |******************* | 0.165106
21 37759.368 0.92878 | . |******************* | 0.168967
22 37605.002 0.92498 | . |****************** | 0.172710
23 37454.510 0.92128 | . |****************** | 0.176344
24 37305.164 0.91761 | . |****************** | 0.179877

Zero Mean 0 1.2490 0.9458 1.40 0.9605
1 0.6976 0.8547 0.51 0.8258
2 0.5296 0.8147 0.36 0.7892
Single Mean 0 0.2879 0.9701 0.23 0.9746 1.59 0.6626
1 -0.7823 0.9054 -0.41 0.9052 0.74 0.8808
2 -1.0905 0.8778 -0.53 0.8822 0.71 0.8898
Trend 0 -2.4481 0.9575 -1.26 0.8975 1.69 0.8396
1 -5.0043 0.8204 -1.68 0.7622 1.77 0.8228
2 -5.6430 0.7725 -1.77 0.7217 1.86 0.8056
273
Autocorrelations
0 46.672310 1.00000 | |********************| 0
1 18.751123 0.40176 | .|******** | 0.027237
2 9.903302 0.21219 | .|**** | 0.031326
3 5.529930 0.11848 | .|** | 0.032375
4 2.583513 0.05535 | .|* | 0.032695
5 2.167791 0.04645 | .|* | 0.032764
6 1.792537 0.03841 | .|* | 0.032813
7 0.287380 0.00616 | .|. | 0.032846
8 1.964802 0.04210 | .|* | 0.032847
9 3.060730 0.06558 | .|* | 0.032887
10 5.606956 0.12013 | .|** | 0.032984
11 3.779712 0.08098 | .|** | 0.033307
12 1.045868 0.02241 | .|. | 0.033453
13 -3.352059 -.07182 | *|. | 0.033464
14 -2.338052 -.05010 | *|. | 0.033578
15 -0.492114 -.01054 | .|. | 0.033634
16 1.896041 0.04062 | .|* | 0.033636
17 1.660646 0.03558 | .|* | 0.033672
18 -1.200615 -.02572 | *|. | 0.033700
19 -2.772783 -.05941 | *|. | 0.033715
20 -4.146000 -.08883 | **|. | 0.033792
21 -5.682302 -.12175 | **|. | 0.033965
22 -3.828857 -.08204 | **|. | 0.034287
23 -1.204143 -.02580 | *|. | 0.034433
274
Autocorrelations
24 0.982835 0.02106 | .|. | 0.034447

Zero Mean 0 -803.778 0.0001 -23.92 <.0001
1 -703.868 0.0001 -18.60 <.0001
2 -671.046 0.0001 -16.18 <.0001
Single Mean 0 -805.660 0.0001 -23.95 <.0001 286.82 0.0010
1 -707.110 0.0001 -18.63 <.0001 173.55 0.0010
2 -675.854 0.0001 -16.21 <.0001 131.40 0.0010
Trend 0 -806.739 0.0001 -23.96 <.0001 287.13 0.0010
1 -709.089 0.0001 -18.64 <.0001 173.79 0.0010
2 -678.905 0.0001 -16.22 <.0001 131.63 0.0010
275
EQUITY
STATIONARITY

Autocorrelations
0 124.771 1.00000 | |********************| 0
1 124.330 0.99647 | .|********************| 0.027227
2 123.897 0.99300 | . |********************| 0.047047
3 123.466 0.98954 | . |********************| 0.060624
4 123.039 0.98612 | . |********************| 0.071603
5 122.621 0.98277 | . |********************| 0.081048
6 122.208 0.97946 | . |********************| 0.089446
7 121.769 0.97594 | . |********************| 0.097072
8 121.328 0.97241 | . |******************* | 0.104092
9 120.866 0.96870 | . |******************* | 0.110621
10 120.378 0.96479 | . |******************* | 0.116740
11 119.909 0.96103 | . |******************* | 0.122508
12 119.426 0.95716 | . |******************* | 0.127975
13 118.923 0.95313 | . |******************* | 0.133176
14 118.406 0.94899 | . |******************* | 0.138140
15 117.886 0.94482 | . |******************* | 0.142891
16 117.359 0.94060 | . |******************* | 0.147449
17 116.791 0.93604 | . |******************* | 0.151832
18 116.223 0.93149 | . |******************* | 0.156051
19 115.668 0.92704 | . |******************* | 0.160120
20 115.109 0.92257 | . |****************** | 0.164050
21 114.532 0.91794 | . |****************** | 0.167852
276
Autocorrelations
22 113.956 0.91332 | . |****************** | 0.171533
23 113.352 0.90848 | . |****************** | 0.175101
24 112.764 0.90377 | . |****************** | 0.178561

Zero Mean 0 -0.4375 0.5839 -0.79 0.3730
1 -0.4333 0.5848 -0.81 0.3674
2 -0.4356 0.5843 -0.82 0.3619
Single Mean 0 0.1368 0.9639 0.06 0.9630 0.36 0.9817
1 0.2589 0.9690 0.13 0.9677 0.39 0.9771
2 0.3163 0.9712 0.16 0.9697 0.41 0.9730
Trend 0 -2.9444 0.9394 -1.21 0.9079 3.12 0.5491
1 -2.7609 0.9466 -1.16 0.9165 3.18 0.5377
2 -2.6538 0.9505 -1.13 0.9222 3.16 0.5412
277
Autocorrelations
0 0.410194 1.00000 | |********************| 0
1 -0.010679 -.02603 | *|. | 0.027237
2 -0.0040858 -.00996 | .|. | 0.027255
3 -0.014974 -.03650 | *|. | 0.027258
4 -0.0060378 -.01472 | .|. | 0.027294
5 0.0064897 0.01582 | .|. | 0.027300
6 0.015714 0.03831 | .|* | 0.027307
7 0.0013094 0.00319 | .|. | 0.027347
8 0.015492 0.03777 | .|* | 0.027347
9 0.013021 0.03174 | .|* | 0.027386
10 0.0084513 0.02060 | .|. | 0.027413
11 0.0028317 0.00690 | .|. | 0.027424
12 0.0075123 0.01831 | .|. | 0.027426
13 0.0064374 0.01569 | .|. | 0.027435
14 0.0054731 0.01334 | .|. | 0.027441
15 -0.012288 -.02996 | *|. | 0.027446
16 0.037654 0.09180 | .|** | 0.027470
17 0.012509 0.03049 | .|* | 0.027697
18 -0.010617 -.02588 | *|. | 0.027722
19 -0.0030667 -.00748 | .|. | 0.027740
20 0.0032489 0.00792 | .|. | 0.027741
21 -0.010260 -.02501 | *|. | 0.027743
22 0.028973 0.07063 | .|* | 0.027760
23 -0.0038685 -.00943 | .|. | 0.027893
278
Autocorrelations
24 0.0025134 0.00613 | .|. | 0.027895

Zero Mean 0 -1381.33 0.0001 -37.63 <.0001
1 -1408.51 0.0001 -26.52 <.0001
2 -1576.15 0.0001 -22.26 <.0001
Single Mean 0 -1382.07 0.0001 -37.64 <.0001 708.44 0.0010
1 -1410.92 0.0001 -26.53 <.0001 351.98 0.0010
2 -1582.09 0.0001 -22.28 <.0001 248.16 0.0010
Trend 0 -1387.01 0.0001 -37.76 <.0001 713.05 0.0010
1 -1426.73 0.0001 -26.67 <.0001 355.56 0.0010
2 -1621.92 0.0001 -22.44 <.0001 251.78 0.0010
279
MODEL
CO-INTEGRATION

integration.
0 0 0.0071 9.6885 15.34
1 1 0 0.0577 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.3756 0.02423 15.5 0.0001 CDS (t-1)
AR1_1_2 -2.59833 0.25847 -10.05 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.01628 0.01748 -0.93 0.3519 1
AR1_2_1 0.00341 0.00257 1.33 0.1847 CDS (t-1)
AR1_2_2 -0.02211 0.02741 -0.81 0.42 EQ (t-1)
Table 3.3

1 2 101.06 <.0001
2 2 1.76 0.1845

280
Table 3.4
CDS 1diff 0.2201 6.04214 189.65 <.0001
EQ 1diff 0.002 0.64076 1.34 0.263
Table 3.5
Watson Chi Square
CDS 1diff 2.12578 9999.99 <.0001 33.22 <.0001
EQ 1diff 1.99848 1198.79 <.0001 3.77 0.0523
281
CDS
STATIONARITY

Autocorrelations
0 61724.615 1.00000 | |********************| 0
1 61557.140 0.99729 | .|********************| 0.027227
2 61355.813 0.99403 | . |********************| 0.047073
3 61126.710 0.99031 | . |********************| 0.060669
4 60875.636 0.98625 | . |********************| 0.071657
5 60617.874 0.98207 | . |********************| 0.081098
6 60335.315 0.97749 | . |********************| 0.089480
7 60050.098 0.97287 | . |******************* | 0.097074
8 59766.513 0.96828 | . |******************* | 0.104051
9 59486.621 0.96374 | . |******************* | 0.110528
10 59212.347 0.95930 | . |******************* | 0.116591
11 58934.959 0.95480 | . |******************* | 0.122303
12 58648.056 0.95016 | . |******************* | 0.127709
13 58359.581 0.94548 | . |******************* | 0.132846
14 58065.359 0.94072 | . |******************* | 0.137744
15 57771.391 0.93595 | . |******************* | 0.142427
16 57475.978 0.93117 | . |******************* | 0.146915
17 57169.727 0.92621 | . |******************* | 0.151227
18 56863.886 0.92125 | . |****************** | 0.155375
19 56554.179 0.91623 | . |****************** | 0.159373
282
Autocorrelations
20 56247.402 0.91126 | . |****************** | 0.163231
21 55937.269 0.90624 | . |****************** | 0.166959
22 55631.982 0.90129 | . |****************** | 0.170567
23 55331.775 0.89643 | . |****************** | 0.174061
24 55032.991 0.89159 | . |****************** | 0.177451

Zero Mean 0 1.5577 0.9713 1.69 0.9782
1 1.2597 0.9470 1.06 0.9255
2 1.0909 0.9264 0.83 0.8908
Single Mean 0 0.9077 0.9873 0.57 0.9890 1.55 0.6744
1 0.0686 0.9608 0.03 0.9604 0.83 0.8599
2 -0.4507 0.9308 -0.20 0.9360 0.70 0.8913
Trend 0 -1.6432 0.9782 -0.79 0.9655 1.92 0.7932
1 -3.0705 0.9341 -1.15 0.9190 1.63 0.8518
2 -3.8497 0.8953 -1.30 0.8863 1.59 0.8603
283
Autocorrelations
0 114.719 1.00000 | |********************| 0
1 27.603739 0.24062 | .|***** | 0.027237
2 17.055785 0.14867 | .|*** | 0.028771
3 13.711945 0.11953 | .|** | 0.029335
4 13.554669 0.11816 | .|** | 0.029694
5 19.797134 0.17257 | .|*** | 0.030041
6 3.084640 0.02689 | .|* | 0.030767
7 0.099773 0.00087 | .|. | 0.030785
8 2.469368 0.02153 | .|. | 0.030785
9 0.017917 0.00016 | .|. | 0.030796
10 4.970823 0.04333 | .|* | 0.030796
11 2.313235 0.02016 | .|. | 0.030841
12 0.607009 0.00529 | .|. | 0.030851
13 0.607911 0.00530 | .|. | 0.030852
14 -6.495992 -.05663 | *|. | 0.030852
15 -2.830516 -.02467 | .|. | 0.030929
16 5.547689 0.04836 | .|* | 0.030944
17 0.762149 0.00664 | .|. | 0.031000
18 1.194696 0.01041 | .|. | 0.031001
19 -3.111747 -.02713 | *|. | 0.031004
20 -2.233390 -.01947 | .|. | 0.031021
21 -2.991302 -.02608 | *|. | 0.031030
22 -3.210828 -.02799 | *|. | 0.031047
23 1.294386 0.01128 | .|. | 0.031065
284
Autocorrelations
24 2.951091 0.02572 | .|* | 0.031068

Zero Mean 0 -1020.21 0.0001 -28.62 <.0001
1 -836.001 0.0001 -20.37 <.0001
2 -695.437 0.0001 -16.52 <.0001
Single Mean 0 -1022.33 0.0001 -28.65 <.0001 410.54 0.0010
1 -839.822 0.0001 -20.41 <.0001 208.26 0.0010
2 -700.351 0.0001 -16.55 <.0001 136.98 0.0010
Trend 0 -1024.86 0.0001 -28.70 <.0001 411.80 0.0010
1 -844.266 0.0001 -20.45 <.0001 209.07 0.0010
2 -706.138 0.0001 -16.59 <.0001 137.62 0.0010
285
EQUITY
STATIONARITY

Autocorrelations
0 41.552011 1.00000 | |********************| 0
1 41.398080 0.99630 | .|********************| 0.027227
2 41.239009 0.99247 | . |********************| 0.047042
3 41.083645 0.98873 | . |********************| 0.060607
4 40.914119 0.98465 | . |********************| 0.071572
5 40.750021 0.98070 | . |********************| 0.080994
6 40.581055 0.97663 | . |********************| 0.089364
7 40.409389 0.97250 | . |******************* | 0.096954
8 40.237494 0.96836 | . |******************* | 0.103933
9 40.067248 0.96427 | . |******************* | 0.110419
10 39.885365 0.95989 | . |******************* | 0.116494
11 39.709277 0.95565 | . |******************* | 0.122217
12 39.525711 0.95123 | . |******************* | 0.127636
13 39.337288 0.94670 | . |******************* | 0.132787
14 39.147224 0.94213 | . |******************* | 0.137700
15 38.956279 0.93753 | . |******************* | 0.142398
16 38.761295 0.93284 | . |******************* | 0.146902
17 38.556757 0.92792 | . |******************* | 0.151230
18 38.349716 0.92293 | . |****************** | 0.155393
19 38.142904 0.91796 | . |****************** | 0.159405
20 37.927667 0.91278 | . |****************** | 0.163276
21 37.707491 0.90748 | . |****************** | 0.167016
286
Autocorrelations
22 37.490888 0.90226 | . |****************** | 0.170632
23 37.272274 0.89700 | . |****************** | 0.174133
24 37.066462 0.89205 | . |****************** | 0.177525

Zero Mean 0 -0.5311 0.5634 -0.83 0.3584
1 -0.5440 0.5607 -0.84 0.3528
2 -0.5400 0.5615 -0.86 0.3451
Single Mean 0 -1.1863 0.8685 -0.48 0.8931 0.38 0.9780
1 -1.2368 0.8634 -0.49 0.8903 0.39 0.9759
2 -1.0565 0.8810 -0.43 0.9014 0.39 0.9762
Trend 0 -4.4263 0.8601 -1.50 0.8288 2.20 0.7367
1 -4.4472 0.8588 -1.49 0.8313 2.13 0.7502
2 -4.1590 0.8770 -1.44 0.8499 2.08 0.7609
287
Autocorrelations
0 0.189931 1.00000 | |********************| 0
1 0.0015656 0.00824 | .|. | 0.027237
2 -0.0053765 -.02831 | *|. | 0.027239
3 0.0084861 0.04468 | .|* | 0.027260
4 -0.0031889 -.01679 | .|. | 0.027315
5 0.0057777 0.03042 | .|* | 0.027322
6 0.00017547 0.00092 | .|. | 0.027347
7 0.0014205 0.00748 | .|. | 0.027347
8 -0.0013416 -.00706 | .|. | 0.027349
9 0.0090502 0.04765 | .|* | 0.027350
10 0.0040392 0.02127 | .|. | 0.027412
11 0.0049598 0.02611 | .|* | 0.027424
12 0.0036766 0.01936 | .|. | 0.027443
13 0.00006975 0.00037 | .|. | 0.027453
14 0.0017492 0.00921 | .|. | 0.027453
15 -0.0054486 -.02869 | *|. | 0.027455
16 0.0084391 0.04443 | .|* | 0.027477
17 0.0047749 0.02514 | .|* | 0.027530
18 -0.0005983 -.00315 | .|. | 0.027547
19 0.0055815 0.02939 | .|* | 0.027548
20 0.0042298 0.02227 | .|. | 0.027571
21 -0.0070671 -.03721 | *|. | 0.027584
22 0.0016596 0.00874 | .|. | 0.027622
23 -0.0066275 -.03489 | *|. | 0.027624
288
Autocorrelations
24 -0.0083826 -.04413 | *|. | 0.027656

Zero Mean 0 -1335.33 0.0001 -36.36 <.0001
1 -1411.39 0.0001 -26.54 <.0001
2 -1230.39 0.0001 -20.50 <.0001
Single Mean 0 -1335.89 0.0001 -36.37 <.0001 661.25 0.0010
1 -1413.24 0.0001 -26.55 <.0001 352.36 0.0010
2 -1233.57 0.0001 -20.51 <.0001 210.31 0.0010
Trend 0 -1338.04 0.0001 -36.41 <.0001 662.77 0.0010
1 -1420.08 0.0001 -26.60 <.0001 353.69 0.0010
2 -1245.26 0.0001 -20.56 <.0001 211.40 0.0010
289
MODEL
CO-INTEGRATION

integration.
0 0 0.0118 16.0802 15.34
1 1 0 0.0256 3.84
VECM-MODEL

Variable 1
CDS 0.00997
EQUITY 0.41243

Variable 1
CDS -0.99311
EQUITY -0.01783
Table 3.4
CDS Constant1 13.60703 3.60652 3.77 0.0002 1
AR1_1_1 -0.00991 0.00268 CDS (t-1)
AR1_1_2 -0.40959 0.1107 EQ (t-1)
AR2_1_1 0.23625 0.02509 9.42 0.0001 D_CDS (t-1)
AR2_1_2 -6.98465 0.62163 -11.24 0.0001 D_EQ (t-1)
EQ Constant2 0.22946 0.15935 1.44 0.1501 1
AR1_2_1 -0.00018 0.00012 CDS (t-1)
AR1_2_2 -0.00736 0.00489 EQ (t-1)
AR2_2_1 0.00142 0.00111 1.28 0.2 D_CDS (t-1)
AR2_2_2 0.01404 0.02747 0.51 0.6093 D_EQ (t-1)
290
Table 3.5

1 2 154.09 <.0001
2 2 3.83 0.1476


Table 3.6
CDS 1diff 0.1547 9.85109 61.4 <.0001
EQ 1diff 0.0031 0.43525 1.03 0.3898
Table 3.7
Variable Durbin Watson Normality Chi Pr > Chi Sq F Value Pr > F
Square
CDS 1diff 2.08987 8697.37 <.0001 85.01 <.0001
EQ 1diff 1.99759 9999.99 <.0001 0 0.9901
291
CDS
STATIONARITY

Autocorrelations
0 344555 1.00000 | |********************| 0
1 343966 0.99829 | .|********************| 0.027227
2 343216 0.99612 | . |********************| 0.047104
3 342326 0.99353 | . |********************| 0.060745
4 341308 0.99058 | . |********************| 0.071787
5 340206 0.98738 | . |********************| 0.081290
6 339005 0.98389 | . |********************| 0.089741
7 337706 0.98012 | . |********************| 0.097410
8 336354 0.97620 | . |********************| 0.104465
9 334967 0.97218 | . |******************* | 0.111022
10 333560 0.96809 | . |******************* | 0.117162
11 332139 0.96397 | . |******************* | 0.122949
12 330660 0.95967 | . |******************* | 0.128430
13 329141 0.95526 | . |******************* | 0.133640
14 327550 0.95065 | . |******************* | 0.138609
15 325937 0.94597 | . |******************* | 0.143361
16 324258 0.94109 | . |******************* | 0.147916
17 322538 0.93610 | . |******************* | 0.152289
18 320754 0.93092 | . |******************* | 0.156497
19 318930 0.92563 | . |******************* | 0.160549
292
Autocorrelations
20 317070 0.92023 | . |****************** | 0.164458
21 315211 0.91484 | . |****************** | 0.168231
22 313411 0.90961 | . |****************** | 0.171880
23 311629 0.90444 | . |****************** | 0.175412
24 309852 0.89928 | . |****************** | 0.178835

Zero Mean 0 1.3060 0.9517 1.45 0.9639
1 0.8157 0.8798 0.62 0.8491
2 0.7015 0.8556 0.50 0.8238
Single Mean 0 0.3243 0.9715 0.26 0.9762 1.70 0.6354
1 -0.6197 0.9185 -0.34 0.9167 0.84 0.8573
2 -0.8321 0.9012 -0.43 0.9014 0.79 0.8685
Trend 0 -1.9662 0.9711 -1.07 0.9321 1.48 0.8821
1 -3.8753 0.8938 -1.44 0.8487 1.42 0.8946
2 -4.2603 0.8708 -1.50 0.8283 1.45 0.8873
293
Autocorrelations
0 396.325 1.00000 | |********************| 0
1 144.393 0.36433 | .|******* | 0.027237
2 68.832811 0.17368 | .|*** | 0.030639
3 57.224735 0.14439 | .|*** | 0.031361
4 51.652492 0.13033 | .|*** | 0.031851
5 69.867417 0.17629 | .|**** | 0.032244
6 43.018773 0.10854 | .|** | 0.032951
7 34.404776 0.08681 | .|** | 0.033215
8 39.234585 0.09900 | .|** | 0.033383
9 38.980332 0.09835 | .|** | 0.033600
10 18.962957 0.04785 | .|* | 0.033813
11 18.940390 0.04779 | .|* | 0.033863
12 20.423191 0.05153 | .|* | 0.033913
13 18.888973 0.04766 | .|* | 0.033971
14 -2.943059 -.00743 | .|. | 0.034021
15 14.709741 0.03712 | .|* | 0.034022
16 24.564671 0.06198 | .|* | 0.034052
17 52.625897 0.13278 | .|*** | 0.034136
18 14.989989 0.03782 | .|* | 0.034517
19 -9.236894 -.02331 | .|. | 0.034548
20 -18.135824 -.04576 | *|. | 0.034559
21 -25.759664 -.06500 | *|. | 0.034604
22 -2.464054 -.00622 | .|. | 0.034695
23 6.185165 0.01561 | .|. | 0.034695
294
Autocorrelations
24 23.113500 0.05832 | .|* | 0.034701

Zero Mean 0 -853.717 0.0001 -24.98 <.0001
1 -770.305 0.0001 -19.51 <.0001
2 -623.327 0.0001 -15.68 <.0001
Single Mean 0 -855.870 0.0001 -25.02 <.0001 312.94 0.0010
1 -774.217 0.0001 -19.55 <.0001 191.11 0.0010
2 -628.235 0.0001 -15.72 <.0001 123.60 0.0010
Trend 0 -857.003 0.0001 -25.03 <.0001 313.26 0.0010
1 -776.351 0.0001 -19.56 <.0001 191.38 0.0010
2 -630.844 0.0001 -15.73 <.0001 123.77 0.0010
295
EQUITY
STATIONARITY

Autocorrelations
0 89.397348 1.00000 | |********************| 0
1 89.197337 0.99776 | .|********************| 0.027227
2 88.984572 0.99538 | . |********************| 0.047088
3 88.770199 0.99298 | . |********************| 0.060714
4 88.553808 0.99056 | . |********************| 0.071750
5 88.335740 0.98812 | . |********************| 0.081257
6 88.120787 0.98572 | . |********************| 0.089724
7 87.901114 0.98326 | . |********************| 0.097421
8 87.667966 0.98066 | . |********************| 0.104519
9 87.431250 0.97801 | . |********************| 0.111131
10 87.188836 0.97530 | . |********************| 0.117338
11 86.949015 0.97261 | . |******************* | 0.123200
12 86.701332 0.96984 | . |******************* | 0.128766
13 86.443349 0.96696 | . |******************* | 0.134072
14 86.180348 0.96401 | . |******************* | 0.139146
15 85.919210 0.96109 | . |******************* | 0.144012
16 85.659966 0.95819 | . |******************* | 0.148690
17 85.395544 0.95524 | . |******************* | 0.153199
18 85.136602 0.95234 | . |******************* | 0.157553
19 84.880944 0.94948 | . |******************* | 0.161764
20 84.619785 0.94656 | . |******************* | 0.165843
21 84.355297 0.94360 | . |******************* | 0.169801
296
Autocorrelations
22 84.094523 0.94068 | . |******************* | 0.173645
23 83.834912 0.93778 | . |******************* | 0.177382
24 83.577420 0.93490 | . |******************* | 0.181020

Zero Mean 0 -0.8726 0.4956 -1.85 0.0619
1 -0.9156 0.4878 -1.83 0.0647
2 -0.9141 0.4881 -1.80 0.0691
Single Mean 0 0.3719 0.9732 0.28 0.9772 2.20 0.5059
1 0.2002 0.9666 0.14 0.9688 2.02 0.5519
2 0.1842 0.9659 0.13 0.9679 1.95 0.5715
Trend 0 -2.3231 0.9614 -1.07 0.9327 1.27 0.9239
1 -2.5374 0.9546 -1.10 0.9273 1.14 0.9480
2 -2.6173 0.9518 -1.12 0.9240 1.16 0.9440
297
Autocorrelations
0 0.117697 1.00000 | |********************| 0
1 0.0067586 0.05742 | .|* | 0.027237
2 0.0018342 0.01558 | .|. | 0.027326
3 -0.0025664 -.02180 | .|. | 0.027333
4 0.00091810 0.00780 | .|. | 0.027346
5 -0.0019025 -.01616 | .|. | 0.027348
6 -0.0023301 -.01980 | .|. | 0.027355
7 0.0086935 0.07386 | .|* | 0.027365
8 0.00046719 0.00397 | .|. | 0.027513
9 0.0018450 0.01568 | .|. | 0.027513
10 0.00031439 0.00267 | .|. | 0.027520
11 0.0055094 0.04681 | .|* | 0.027520
12 0.0035612 0.03026 | .|* | 0.027579
13 0.0034600 0.02940 | .|* | 0.027604
14 -0.0002438 -.00207 | .|. | 0.027627
15 -0.0028602 -.02430 | .|. | 0.027627
16 0.0020053 0.01704 | .|. | 0.027643
17 0.0014771 0.01255 | .|. | 0.027651
18 0.0054540 0.04634 | .|* | 0.027655
19 0.0035528 0.03019 | .|* | 0.027712
20 -0.0033426 -.02840 | *|. | 0.027737
21 -0.0074319 -.06314 | *|. | 0.027758
22 -0.0025698 -.02183 | .|. | 0.027865
23 0.0011668 0.00991 | .|. | 0.027877
298
Autocorrelations
24 0.00097040 0.00824 | .|. | 0.027880

Zero Mean 0 -1265.45 0.0001 -34.56 <.0001
1 -1226.13 0.0001 -24.75 <.0001
2 -1302.15 0.0001 -20.92 <.0001
Single Mean 0 -1269.64 0.0001 -34.66 <.0001 600.67 0.0010
1 -1237.38 0.0001 -24.85 <.0001 308.86 0.0010
2 -1326.17 0.0001 -21.05 <.0001 221.47 0.0010
Trend 0 -1270.88 0.0001 -34.68 <.0001 601.23 0.0010
1 -1240.70 0.0001 -24.88 <.0001 309.41 0.0010
2 -1333.28 0.0001 -21.07 <.0001 222.03 0.0010
299
MODEL
CO-INTEGRATION

integration.
0 0 0.0048 6.435 15.34
1 1 0 0.0012 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.35887 0.02519 14.25 0.0001 CDS (t-1)
AR1_1_2 -7.4463 1.46134 -5.1 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.01866 0.00936 -1.99 0.0465 1
AR1_2_1 -0.00011 0.00047 -0.24 0.8107 CDS (t-1)
AR1_2_2 0.05714 0.02723 2.1 0.0361 EQ (t-1)
Table 3.3

1 2 25.96 <.0001
2 2 0.06 0.8107

300
Table 3.4
CDS 1diff 0.1493 18.38679 117.94 <.0001
EQ 1diff 0.0033 0.34263 2.26 0.105
Table 3.5
Square
CDS 1diff 2.04406 9999.99 <.0001 20.07 <.0001
EQ 1diff 2.00051 9999.99 <.0001 5.25 0.0221
301
Appendix 28 - COMMUNICATION
CDS
STATIONARITY

Autocorrelations
0 14682.404 1.00000 | |********************| 0
1 14652.068 0.99793 | .|********************| 0.027227
2 14616.901 0.99554 | . |********************| 0.047093
3 14574.863 0.99268 | . |********************| 0.060722
4 14527.620 0.98946 | . |********************| 0.071750
5 14481.698 0.98633 | . |********************| 0.081238
6 14430.502 0.98284 | . |********************| 0.089677
7 14382.557 0.97958 | . |********************| 0.097335
8 14334.905 0.97633 | . |********************| 0.104387
9 14287.629 0.97311 | . |******************* | 0.110950
10 14242.613 0.97005 | . |******************* | 0.117106
11 14193.427 0.96670 | . |******************* | 0.122918
12 14143.129 0.96327 | . |******************* | 0.128430
13 14091.049 0.95972 | . |******************* | 0.133679
14 14035.766 0.95596 | . |******************* | 0.138693
15 13980.491 0.95219 | . |******************* | 0.143494
16 13916.921 0.94786 | . |******************* | 0.148104
17 13851.838 0.94343 | . |******************* | 0.152534
18 13786.363 0.93897 | . |******************* | 0.156800
19 13719.664 0.93443 | . |******************* | 0.160914
20 13656.314 0.93011 | . |******************* | 0.164888
21 13592.526 0.92577 | . |******************* | 0.168732
22 13533.697 0.92176 | . |****************** | 0.172456
302
Autocorrelations
23 13476.333 0.91786 | . |****************** | 0.176071
24 13419.076 0.91396 | . |****************** | 0.179583

Zero Mean 0 0.2186 0.7353 0.16 0.7316
1 -0.0333 0.6754 -0.02 0.6762
2 -0.4392 0.5835 -0.24 0.5989
Single Mean 0 -1.3205 0.8549 -0.69 0.8483 0.70 0.8932
1 -1.7847 0.8040 -0.83 0.8103 0.71 0.8902
2 -2.5363 0.7138 -1.03 0.7450 0.80 0.8663
Trend 0 -4.7374 0.8392 -1.63 0.7826 1.46 0.8867
1 -5.8155 0.7590 -1.78 0.7138 1.70 0.8381
2 -7.4829 0.6251 -2.00 0.6033 2.07 0.7630
303
Autocorrelations
0 40.297991 1.00000 | |********************| 0
1 4.450522 0.11044 | .|** | 0.027237
2 5.820296 0.14443 | .|*** | 0.027567
3 4.737915 0.11757 | .|** | 0.028123
4 -1.472683 -.03654 | *|. | 0.028485
5 5.123193 0.12713 | .|*** | 0.028520
6 -3.513280 -.08718 | **|. | 0.028937
7 -0.424492 -.01053 | .|. | 0.029131
8 0.043319 0.00107 | .|. | 0.029134
9 -1.528580 -.03793 | *|. | 0.029134
10 4.745930 0.11777 | .|** | 0.029171
11 0.048729 0.00121 | .|. | 0.029521
12 1.502929 0.03730 | .|* | 0.029521
13 2.174063 0.05395 | .|* | 0.029556
14 -1.008726 -.02503 | *|. | 0.029629
15 7.736375 0.19198 | .|**** | 0.029645
16 1.121142 0.02782 | .|* | 0.030553
17 0.285186 0.00708 | .|. | 0.030572
18 0.766373 0.01902 | .|. | 0.030573
19 -4.486843 -.11134 | **|. | 0.030582
20 -1.503531 -.03731 | *|. | 0.030881
21 -4.825896 -.11976 | **|. | 0.030915
22 -2.174566 -.05396 | *|. | 0.031257
23 -0.289037 -.00717 | .|. | 0.031326
24 0.561459 0.01393 | .|. | 0.031327
304
Zero Mean 0 -1197.37 0.0001 -32.81 <.0001
1 -912.362 0.0001 -21.33 <.0001
2 -716.033 0.0001 -16.77 <.0001
Single Mean 0 -1198.20 0.0001 -32.82 <.0001 538.56 0.0010
1 -913.919 0.0001 -21.33 <.0001 227.58 0.0010
2 -717.914 0.0001 -16.78 <.0001 140.82 0.0010
Trend 0 -1198.45 0.0001 -32.81 <.0001 538.35 0.0010
1 -914.399 0.0001 -21.33 <.0001 227.51 0.0010
2 -718.507 0.0001 -16.78 <.0001 140.78 0.0010
AUTOCORRELATION


305
Test
AR(1) 1346.0697 <.0001
AR(2) 1346.4940 <.0001
AR(3) 1346.5316 <.0001
AR(4) 1346.5419 <.0001


306
Test
AR(1) 235.7924 <.0001
AR(2) 251.0236 <.0001
AR(3) 255.3014 <.0001
AR(4) 255.3499 <.0001
307
EQUITY
STATIONARITY

Autocorrelations
0 45.968950 1.00000 | |********************| 0
1 45.803658 0.99640 | .|********************| 0.027227
2 45.639695 0.99284 | . |********************| 0.047045
3 45.484399 0.98946 | . |********************| 0.060619
4 45.327341 0.98604 | . |********************| 0.071597
5 45.172940 0.98268 | . |********************| 0.081041
6 45.015651 0.97926 | . |********************| 0.089439
7 44.864888 0.97598 | . |********************| 0.097062
8 44.717761 0.97278 | . |******************* | 0.104083
9 44.557716 0.96930 | . |******************* | 0.110617
10 44.403421 0.96594 | . |******************* | 0.116744
11 44.254279 0.96270 | . |******************* | 0.122525
12 44.105826 0.95947 | . |******************* | 0.128010
13 43.955432 0.95620 | . |******************* | 0.133234
14 43.803779 0.95290 | . |******************* | 0.138228
15 43.660217 0.94978 | . |******************* | 0.143014
16 43.515359 0.94663 | . |******************* | 0.147616
17 43.371623 0.94350 | . |******************* | 0.152049
18 43.229747 0.94041 | . |******************* | 0.156329
19 43.091419 0.93740 | . |******************* | 0.160468
20 42.949395 0.93431 | . |******************* | 0.164477
21 42.796412 0.93099 | . |******************* | 0.168366
22 42.640821 0.92760 | . |******************* | 0.172139
23 42.476744 0.92403 | . |****************** | 0.175806
308
Autocorrelations
24 42.320503 0.92063 | . |****************** | 0.179370

Zero Mean 0 -0.4486 0.5814 -0.87 0.3398
1 -0.4682 0.5771 -0.93 0.3123
2 -0.4620 0.5784 -0.97 0.2978
Single Mean 0 -1.2007 0.8670 -0.49 0.8912 0.43 0.9688
1 -1.0472 0.8819 -0.44 0.9006 0.47 0.9601
2 -0.7754 0.9060 -0.34 0.9167 0.48 0.9575
Trend 0 -3.7042 0.9033 -1.31 0.8845 1.74 0.8282
1 -3.3601 0.9209 -1.22 0.9049 1.56 0.8653
2 -2.9773 0.9380 -1.14 0.9214 1.53 0.8726
309
Autocorrelations
0 0.206263 1.00000 | |********************| 0
1 -0.0054558 -.02645 | *|. | 0.027237
2 -0.0098772 -.04789 | *|. | 0.027256
3 0.0020345 0.00986 | .|. | 0.027318
4 -0.0049274 -.02389 | .|. | 0.027321
5 0.0036782 0.01783 | .|. | 0.027336
6 -0.0072596 -.03520 | *|. | 0.027345
7 -0.0035381 -.01715 | .|. | 0.027378
8 0.012363 0.05994 | .|* | 0.027386
9 -0.0072009 -.03491 | *|. | 0.027484
10 0.00028553 0.00138 | .|. | 0.027516
11 -0.0001571 -.00076 | .|. | 0.027517
12 0.00010310 0.00050 | .|. | 0.027517
13 -0.0003427 -.00166 | .|. | 0.027517
14 -0.0018955 -.00919 | .|. | 0.027517
15 -0.0026837 -.01301 | .|. | 0.027519
16 0.0014514 0.00704 | .|. | 0.027523
17 0.0036217 0.01756 | .|. | 0.027525
18 -0.0049976 -.02423 | .|. | 0.027533
19 0.0020756 0.01006 | .|. | 0.027549
20 0.0081115 0.03933 | .|* | 0.027552
21 -0.0028189 -.01367 | .|. | 0.027593
22 0.0070027 0.03395 | .|* | 0.027598
23 -0.0022440 -.01088 | .|. | 0.027629
24 -0.0086645 -.04201 | *|. | 0.027632
310
Zero Mean 0 -1381.96 0.0001 -37.69 <.0001
1 -1521.52 0.0001 -27.58 <.0001
2 -1483.13 0.0001 -21.84 <.0001
Single Mean 0 -1382.65 0.0001 -37.70 <.0001 710.67 0.0010
1 -1524.09 0.0001 -27.59 <.0001 380.73 0.0010
2 -1488.49 0.0001 -21.86 <.0001 238.96 0.0010
Trend 0 -1384.41 0.0001 -37.73 <.0001 711.82 0.0010
1 -1530.18 0.0001 -27.63 <.0001 381.82 0.0010
2 -1500.96 0.0001 -21.91 <.0001 239.97 0.0010
AUTOCORRELATION


311
Test
AR(1) 1343.2477 <.0001
AR(2) 1343.2602 <.0001
AR(3) 1343.3052 <.0001
AR(4) 1343.3128 <.0001


312
Test
AR(1) 2.4661 0.1163
AR(2) 12.7721 0.0017
AR(3) 14.6266 0.0022
AR(4) 15.4389 0.0039
MODEL
CO-INTEGRATION

integration.
0 0 0.0046 6.2066 15.34
1 1 0 0.0218 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.13201 0.02712 4.87 0.0001 CDS (t-1)
AR1_1_2 -2.03795 0.37921 -5.37 0.0001 EQ (t-1)
AR2_1_1 -0.01039 0.01238 -0.84 0.4015 CDS (t-2)
AR2_1_2 -0.0014 0.00197 -0.71 0.4773 EQ (t-2)
EQ 1 diff Constant2 -0.02358 0.02753 -0.86 0.392 1
AR1_2_1 0.12303 0.17046 0.72 0.4706 CDS (t-1)
AR1_2_2 0.13201 0.02712 4.87 0.0001 EQ (t-1)
AR2_2_1 -2.03795 0.37921 -5.37 0.0001 CDS (t-2)
AR2_2_2 -0.01039 0.01238 -0.84 0.4015 EQ (t-2)
Table 5.3
313

1 2 28.88 <.0001
2 2 0.51 0.4772

Table 5.4
CDS 1diff 0.033 6.25178 22.92 <.0001
EQ 1diff 0.0011 0.45394 0.72 0.4845
Table 5.5
Square
CDS 1diff 2.04458 9999.99 <.0001 91.42 <.0001
EQ 1diff 2.00205 9999.99 <.0001 0.01 0.9145
314
Appendix 29 – CONSUMER, CYCLICAL
CDS
STATIONARITY

Autocorrelations
0 29017.914 1.00000 | |********************| 0
1 28980.490 0.99871 | .|********************| 0.027227
2 28924.407 0.99678 | . |********************| 0.047117
3 28852.379 0.99430 | . |********************| 0.060771
4 28769.759 0.99145 | . |********************| 0.071825
5 28681.634 0.98841 | . |********************| 0.081340
6 28583.582 0.98503 | . |********************| 0.089803
7 28476.389 0.98134 | . |********************| 0.097484
8 28362.269 0.97741 | . |********************| 0.104551
9 28245.854 0.97339 | . |******************* | 0.111118
10 28128.320 0.96934 | . |******************* | 0.117269
11 28007.296 0.96517 | . |******************* | 0.123065
12 27881.637 0.96084 | . |******************* | 0.128554
13 27749.759 0.95630 | . |******************* | 0.133772
14 27612.810 0.95158 | . |******************* | 0.138747
15 27471.716 0.94672 | . |******************* | 0.143503
16 27324.163 0.94163 | . |******************* | 0.148061
17 27172.452 0.93640 | . |******************* | 0.152435
18 27015.414 0.93099 | . |******************* | 0.156641
19 26852.460 0.92538 | . |******************* | 0.160691
20 26686.471 0.91966 | . |****************** | 0.164594
21 26521.905 0.91398 | . |****************** | 0.168360
22 26364.400 0.90856 | . |****************** | 0.171999
315
Autocorrelations
23 26211.364 0.90328 | . |****************** | 0.175520
24 26059.317 0.89804 | . |****************** | 0.178933

Zero Mean 0 0.8309 0.8829 0.94 0.9075
1 -0.0289 0.6764 -0.02 0.6771
2 -0.3836 0.5959 -0.22 0.6070
Single Mean 0 -0.1558 0.9493 -0.12 0.9451 1.05 0.8027
1 -1.8372 0.7979 -0.84 0.8077 0.68 0.8983
2 -2.5129 0.7166 -1.02 0.7462 0.77 0.8735
Trend 0 -1.8748 0.9733 -1.08 0.9304 1.05 0.9606
1 -4.9083 0.8272 -1.63 0.7822 1.45 0.8879
2 -6.0278 0.7422 -1.78 0.7128 1.67 0.8431
316
Autocorrelations
0 34.074309 1.00000 | |********************| 0
1 17.096778 0.50175 | .|********** | 0.027237
2 11.196734 0.32860 | .|******* | 0.033397
3 7.521272 0.22073 | .|**** | 0.035715
4 3.543226 0.10399 | .|** | 0.036713
5 7.102234 0.20843 | .|**** | 0.036931
6 5.414740 0.15891 | . |*** | 0.037794
7 4.587221 0.13462 | . |*** | 0.038286
8 2.912201 0.08547 | . |** | 0.038636
9 2.961379 0.08691 | . |** | 0.038776
10 4.837847 0.14198 | . |*** | 0.038920
11 2.841561 0.08339 | . |** | 0.039302
12 3.466192 0.10172 | . |** | 0.039433
13 1.038760 0.03049 | . |*. | 0.039627
14 0.914435 0.02684 | . |*. | 0.039645
15 2.961615 0.08692 | . |** | 0.039658
16 2.744660 0.08055 | . |** | 0.039799
17 4.269887 0.12531 | . |*** | 0.039920
18 3.335564 0.09789 | . |** | 0.040211
19 -0.130749 -.00384 | .|. | 0.040387
20 -2.011055 -.05902 | .*| . | 0.040388
21 -3.404472 -.09991 | **| . | 0.040451
22 -2.378244 -.06980 | .*| . | 0.040634
23 0.183770 0.00539 | .|. | 0.040723
24 2.032354 0.05964 | . |*. | 0.040723

317
Zero Mean 0 -668.774 0.0001 -21.06 <.0001
1 -536.357 0.0001 -16.25 <.0001
2 -496.350 0.0001 -14.29 <.0001
Single Mean 0 -669.815 0.0001 -21.07 <.0001 221.96 0.0010
1 -537.770 0.0001 -16.26 <.0001 132.20 0.0010
2 -498.217 0.0001 -14.30 <.0001 102.25 0.0010
Trend 0 -670.267 0.0001 -21.07 <.0001 221.96 0.0010
1 -538.381 0.0001 -16.26 <.0001 132.19 0.0010
2 -499.062 0.0001 -14.30 <.0001 102.24 0.0010
AUTOCORRELATION


318
Test
AR(1) 1347.0559 <.0001
AR(2) 1347.3864 <.0001
AR(3) 1347.4135 <.0001
AR(4) 1347.4173 <.0001


319
Test
AR(1) 319.2120 <.0001
AR(2) 332.8922 <.0001
AR(3) 334.5532 <.0001
AR(4) 337.7913 <.0001
320
EQUITY
STATIONARITY

Autocorrelations
0 31.951825 1.00000 | |********************| 0
1 31.811025 0.99559 | .|********************| 0.027227
2 31.672993 0.99127 | . |********************| 0.047019
3 31.545778 0.98729 | . |********************| 0.060561
4 31.407407 0.98296 | . |********************| 0.071504
5 31.269161 0.97863 | . |********************| 0.080903
6 31.138105 0.97453 | . |******************* | 0.089248
7 31.009531 0.97051 | . |******************* | 0.096815
8 30.879039 0.96642 | . |******************* | 0.103777
9 30.736977 0.96198 | . |******************* | 0.110247
10 30.590273 0.95739 | . |******************* | 0.116303
11 30.447221 0.95291 | . |******************* | 0.122005
12 30.298851 0.94827 | . |******************* | 0.127403
13 30.140526 0.94331 | . |******************* | 0.132532
14 29.974050 0.93810 | . |******************* | 0.137419
15 29.815442 0.93314 | . |******************* | 0.142087
16 29.664001 0.92840 | . |******************* | 0.146559
17 29.489763 0.92294 | . |****************** | 0.150856
18 29.314683 0.91747 | . |****************** | 0.154985
19 29.141046 0.91203 | . |****************** | 0.158960
20 28.965767 0.90655 | . |****************** | 0.162793
21 28.782052 0.90080 | . |****************** | 0.166493
22 28.615183 0.89557 | . |****************** | 0.170067
23 28.446656 0.89030 | . |****************** | 0.173528
321
Autocorrelations
24 28.277447 0.88500 | . |****************** | 0.176882

Zero Mean 0 -0.2285 0.6310 -0.46 0.5144
1 -0.2290 0.6309 -0.47 0.5130
2 -0.2233 0.6322 -0.48 0.5071
Single Mean 0 -3.6656 0.5775 -1.21 0.6714 0.77 0.8738
1 -3.6174 0.5831 -1.20 0.6768 0.76 0.8773
2 -3.1108 0.6434 -1.09 0.7220 0.64 0.9092
Trend 0 -4.4812 0.8565 -1.46 0.8422 1.88 0.8017
1 -4.4238 0.8603 -1.45 0.8463 1.86 0.8055
2 -3.8832 0.8934 -1.34 0.8765 1.77 0.8235
322
Autocorrelations
0 0.215997 1.00000 | |********************| 0
1 -0.0012283 -.00569 | .|. | 0.027237
2 -0.012075 -.05590 | *|. | 0.027238
3 0.0088087 0.04078 | .|* | 0.027323
4 -0.0005853 -.00271 | .|. | 0.027368
5 -0.0052600 -.02435 | .|. | 0.027368
6 -0.0056982 -.02638 | *|. | 0.027384
7 0.0014765 0.00684 | .|. | 0.027403
8 0.010603 0.04909 | .|* | 0.027404
9 0.0018952 0.00877 | .|. | 0.027469
10 0.0034230 0.01585 | .|. | 0.027471
11 0.0026288 0.01217 | .|. | 0.027478
12 0.0047228 0.02187 | .|. | 0.027482
13 0.0084746 0.03923 | .|* | 0.027495
14 -0.0040477 -.01874 | .|. | 0.027537
15 -0.014459 -.06694 | *|. | 0.027546
16 0.019093 0.08840 | .|** | 0.027666
17 0.0055751 0.02581 | .|* | 0.027875
18 -0.0022356 -.01035 | .|. | 0.027893
19 -0.0009068 -.00420 | .|. | 0.027896
20 0.0032985 0.01527 | .|. | 0.027896
21 -0.019917 -.09221 | **|. | 0.027902
22 0.0012734 0.00590 | .|. | 0.028128
23 0.0046886 0.02171 | .|. | 0.028128
24 -0.0007033 -.00326 | .|. | 0.028141

323
Zero Mean 0 -1354.59 0.0001 -36.89 <.0001
1 -1513.98 0.0001 -27.50 <.0001
2 -1337.26 0.0001 -21.11 <.0001
Single Mean 0 -1354.66 0.0001 -36.88 <.0001 680.11 0.0010
1 -1514.26 0.0001 -27.49 <.0001 377.83 0.0010
2 -1337.78 0.0001 -21.10 <.0001 222.69 0.0010
Trend 0 -1356.25 0.0001 -36.91 <.0001 681.23 0.0010
1 -1519.85 0.0001 -27.53 <.0001 378.90 0.0010
2 -1347.76 0.0001 -21.15 <.0001 223.58 0.0010
AUTOCORRELATION


324
Test
AR(1) 1338.3298 <.0001
AR(2) 1338.3298 <.0001
AR(3) 1338.3540 <.0001
AR(4) 1338.3656 <.0001


325
Test
AR(1) 0.0126 0.9106
AR(2) 3.1390 0.2081
AR(3) 4.6771 0.1970
AR(4) 4.8506 0.3030
MODEL
CO-INTEGRATION

integration.
0 0 0.0041 6.1175 15.34
1 1 0.0005 0.6406 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.37935 0.02709 14 0.0001 CDS (t-1)
AR1_1_2 -3.36513 0.28089 -11.98 0.0001 EQ (t-1)
AR2_1_1 0.13587 0.02605 5.22 0.0001 CDS (t-2)
AR2_1_2 -1.27632 0.29353 -4.35 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00378 0.01269 -0.3 0.7659 1
AR1_2_1 -0.00106 0.00265 -0.4 0.6895 CDS (t-1)
AR1_2_2 -0.00738 0.02746 -0.27 0.788 EQ (t-1)
AR2_2_1 0.0005 0.00255 0.2 0.8431 CDS (t-2)
AR2_2_2 -0.0594 0.02869 -2.07 0.0386 EQ (t-2)
326
Table 5.3

1 2 158.49 <.0001
2 2 0.16 0.9233

Table 5.4
CDS 1diff 0.339 4.75817 171.91 <.0001
EQ 1diff 0.0033 0.46512 1.1 0.3529
Table 5.5
Square
CDS 1diff 2.01632 9999.99 <.0001 29.57 <.0001
EQ 1diff 1.99565 307.23 <.0001 17.72 <.0001
327
Appendix 30 – CONSUMER, NON-CYCLICAL
CDS
STATIONARITY

Autocorrelations
0 1633.901 1.00000 | |********************| 0
1 1630.750 0.99807 | .|********************| 0.027227
2 1626.870 0.99570 | . |********************| 0.047097
3 1622.281 0.99289 | . |********************| 0.060729
4 1617.234 0.98980 | . |********************| 0.071761
5 1611.992 0.98659 | . |********************| 0.081253
6 1606.416 0.98318 | . |********************| 0.089695
7 1600.590 0.97961 | . |********************| 0.097356
8 1594.508 0.97589 | . |********************| 0.104408
9 1588.271 0.97207 | . |******************* | 0.110964
10 1581.871 0.96816 | . |******************* | 0.117106
11 1575.248 0.96410 | . |******************* | 0.122897
12 1568.373 0.95989 | . |******************* | 0.128381
13 1561.262 0.95554 | . |******************* | 0.133595
14 1554.038 0.95112 | . |******************* | 0.138569
15 1546.684 0.94662 | . |******************* | 0.143327
16 1539.198 0.94204 | . |******************* | 0.147889
17 1531.601 0.93739 | . |******************* | 0.152272
18 1523.908 0.93268 | . |******************* | 0.156491
19 1516.164 0.92794 | . |******************* | 0.160559
20 1508.286 0.92312 | . |****************** | 0.164486
21 1500.350 0.91826 | . |****************** | 0.168283
22 1492.488 0.91345 | . |****************** | 0.171957
328
Autocorrelations
23 1484.650 0.90865 | . |****************** | 0.175517
24 1476.788 0.90384 | . |****************** | 0.178971

Zero Mean 0 1.3886 0.9591 2.15 0.9929
1 1.1375 0.9327 1.23 0.9449
2 0.9554 0.9056 0.89 0.9007
Single Mean 0 0.9569 0.9882 0.81 0.9943 2.41 0.4532
1 0.1706 0.9654 0.10 0.9659 0.99 0.8166
2 -0.4201 0.9329 -0.22 0.9341 0.75 0.8782
Trend 0 -0.9370 0.9891 -0.61 0.9777 2.24 0.7283
1 -2.1763 0.9657 -1.00 0.9422 1.45 0.8876
2 -2.9950 0.9373 -1.19 0.9110 1.33 0.9120
329
Autocorrelations
0 1.675718 1.00000 | |********************| 0
1 0.569205 0.33968 | .|******* | 0.027237
2 0.398543 0.23783 | .|***** | 0.030216
3 0.282866 0.16880 | .|*** | 0.031575
4 0.154114 0.09197 | .|** | 0.032237
5 0.125739 0.07504 | .|** | 0.032431
6 0.099923 0.05963 | .|* | 0.032560
7 0.151693 0.09052 | .|** | 0.032641
8 0.080654 0.04813 | .|* | 0.032826
9 0.169968 0.10143 | .|** | 0.032879
10 0.204094 0.12179 | .|** | 0.033110
11 0.107614 0.06422 | .|* | 0.033441
12 0.074660 0.04455 | .|* | 0.033532
13 -0.010363 -.00618 | .|. | 0.033576
14 -0.038500 -.02298 | .|. | 0.033577
15 0.053917 0.03218 | .|* | 0.033588
16 0.064971 0.03877 | .|* | 0.033611
17 0.101591 0.06063 | .|* | 0.033644
18 0.062455 0.03727 | .|* | 0.033725
19 0.063807 0.03808 | .|* | 0.033756
20 0.062353 0.03721 | .|* | 0.033788
21 0.013308 0.00794 | .|. | 0.033818
22 0.029328 0.01750 | .|. | 0.033820
23 0.070542 0.04210 | .|* | 0.033826
24 0.123666 0.07380 | .|* | 0.033865

330
Zero Mean 0 -885.089 0.0001 -25.62 <.0001
1 -661.008 0.0001 -18.04 <.0001
2 -563.470 0.0001 -15.07 <.0001
Single Mean 0 -887.870 0.0001 -25.66 <.0001 329.31 0.0010
1 -665.042 0.0001 -18.08 <.0001 163.46 0.0010
2 -568.502 0.0001 -15.12 <.0001 114.27 0.0010
Trend 0 -890.641 0.0001 -25.71 <.0001 330.48 0.0010
1 -668.928 0.0001 -18.11 <.0001 164.10 0.0010
2 -573.279 0.0001 -15.15 <.0001 114.77 0.0010
AUTOCORRELATION


331
Test
AR(1) 1347.3538 <.0001
AR(2) 1347.4890 <.0001
AR(3) 1347.5181 <.0001
AR(4) 1347.5244 <.0001


332
Test
AR(1) 156.0723 <.0001
AR(2) 179.9187 <.0001
AR(3) 184.4572 <.0001
AR(4) 184.4999 <.0001
333
EQUITY
STATIONARITY

Autocorrelations
0 18.092169 1.00000 | |********************| 0
1 17.983046 0.99397 | .|********************| 0.027227
2 17.886927 0.98866 | . |********************| 0.046968
3 17.808047 0.98430 | . |********************| 0.060458
4 17.710328 0.97889 | . |********************| 0.071355
5 17.610147 0.97336 | . |******************* | 0.080698
6 17.510073 0.96783 | . |******************* | 0.088977
7 17.411115 0.96236 | . |******************* | 0.096465
8 17.315443 0.95707 | . |******************* | 0.103337
9 17.214158 0.95147 | . |******************* | 0.109712
10 17.113252 0.94589 | . |******************* | 0.115667
11 17.015820 0.94051 | . |******************* | 0.121265
12 16.917251 0.93506 | . |******************* | 0.126557
13 16.812377 0.92926 | . |******************* | 0.131579
14 16.702740 0.92320 | . |****************** | 0.136357
15 16.597426 0.91738 | . |****************** | 0.140914
16 16.499703 0.91198 | . |****************** | 0.145274
17 16.395486 0.90622 | . |****************** | 0.149458
18 16.291171 0.90045 | . |****************** | 0.153477
19 16.195093 0.89514 | . |****************** | 0.157344
20 16.096691 0.88970 | . |****************** | 0.161075
21 15.995259 0.88410 | . |****************** | 0.164678
22 15.903662 0.87904 | . |****************** | 0.168160
23 15.810072 0.87386 | . |***************** | 0.171532
24 15.714682 0.86859 | . |***************** | 0.174801
334
Zero Mean 0 -0.1533 0.6481 -0.42 0.5314
1 -0.1441 0.6502 -0.43 0.5264
2 -0.1323 0.6529 -0.45 0.5211
Single Mean 0 -4.2363 0.5134 -1.26 0.6522 0.83 0.8587
1 -3.2765 0.6234 -1.06 0.7325 0.61 0.9174
2 -2.3044 0.7421 -0.84 0.8082 0.41 0.9720
Trend 0 -3.1773 0.9294 -0.92 0.9528 1.61 0.8563
1 -2.1453 0.9665 -0.68 0.9738 1.64 0.8486
2 -1.0952 0.9872 -0.39 0.9879 1.87 0.8033
335
Autocorrelations
0 0.152119 1.00000 | |********************| 0
1 -0.013887 -.09129 | **|. | 0.027237
2 -0.016131 -.10604 | **|. | 0.027463
3 0.016695 0.10975 | .|** | 0.027765
4 0.0022070 0.01451 | .|. | 0.028085
5 -0.0016776 -.01103 | .|. | 0.028090
6 -0.0014991 -.00985 | .|. | 0.028094
7 -0.0042769 -.02812 | *|. | 0.028096
8 0.0086475 0.05685 | .|* | 0.028117
9 -0.0003261 -.00214 | .|. | 0.028202
10 0.00007010 0.00046 | .|. | 0.028202
11 -0.0000356 -.00023 | .|. | 0.028202
12 0.0044216 0.02907 | .|* | 0.028202
13 0.0033278 0.02188 | .|. | 0.028225
14 -0.0024364 -.01602 | .|. | 0.028237
15 -0.0098904 -.06502 | *|. | 0.028244
16 0.0051587 0.03391 | .|* | 0.028355
17 0.0011622 0.00764 | .|. | 0.028385
18 -0.0089422 -.05878 | *|. | 0.028386
19 0.0055776 0.03667 | .|* | 0.028476
20 -0.0005873 -.00386 | .|. | 0.028511
21 -0.0097703 -.06423 | *|. | 0.028512
22 0.0014967 0.00984 | .|. | 0.028619
23 0.0047765 0.03140 | .|* | 0.028621
24 -0.0042776 -.02812 | *|. | 0.028647

336
Zero Mean 0 -1469.89 0.0001 -40.20 <.0001
1 -1851.52 0.0001 -30.40 <.0001
2 -1384.74 0.0001 -21.35 <.0001
Single Mean 0 -1469.98 0.0001 -40.19 <.0001 807.54 0.0010
1 -1851.95 0.0001 -30.39 <.0001 461.92 0.0010
2 -1385.42 0.0001 -21.35 <.0001 227.87 0.0010
Trend 0 -1472.61 0.0001 -40.25 <.0001 810.05 0.0010
1 -1864.18 0.0001 -30.48 <.0001 464.60 0.0010
2 -1404.29 0.0001 -21.43 <.0001 229.69 0.0010
AUTOCORRELATION


337
Test
AR(1) 1336.6511 <.0001
AR(2) 1336.7374 <.0001
AR(3) 1336.8694 <.0001
AR(4) 1336.9580 <.0001


338
Test
AR(1) 11.2352 0.0008
AR(2) 29.0186 <.0001
AR(3) 39.8060 <.0001
AR(4) 40.4463 <.0001
MODEL
CO-INTEGRATION

integration.
0 0 0.0052 8.5067 15.34
1 1 0.0012 1.5514 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.24989 0.02709 9.22 0.0001 CDS (t-1)
AR1_1_2 -0.62065 0.08353 -7.43 0.0001 EQ (t-1)
AR2_1_1 0.14650 0.02661 5.50 0.0001 CDS (t-2)
AR2_1_2 -0.34168 0.08484 -4.03 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00307 0.01057 -0.29 0.7715 1
AR1_2_1 -0.00960 0.00888 -1.08 0.2800 CDS (t-1)
AR1_2_2 -0.10597 0.02738 -3.87 0.0001 EQ (t-1)
AR2_2_1 -0.00031 0.00872 -0.04 0.9720 CDS (t-2)
AR2_2_2 -0.12239 0.02781 -4.40 0.0001 EQ (t-2)
339
Table 5.3

1 2 65.41 <0.0001
2 2 1.33 0.5132

Table 5.4
CDS 1diff 0.1738 1.17947 70.52 < 0.0001
EQ 1diff 0.0225 0.38661 7.72 < 0.0001
Table 5.5
Square
CDS 1diff 2.03497 9999.99 < 0.0001 24.12 < 0.0001
EQ 1diff 1.97926 4026.34 < 0.0001 85.44 < 0.0001
340
Appendix 31 - ENERGY
CDS
STATIONARITY

Autocorrelations
0 4218.331 1.00000 | |********************| 0
1 4210.151 0.99806 | .|********************| 0.027227
2 4198.563 0.99531 | . |********************| 0.047097
3 4183.585 0.99176 | . |********************| 0.060719
4 4166.137 0.98763 | . |********************| 0.071729
5 4147.489 0.98321 | . |********************| 0.081186
6 4127.398 0.97844 | . |********************| 0.089579
7 4106.642 0.97352 | . |******************* | 0.097179
8 4085.129 0.96842 | . |******************* | 0.104158
9 4062.965 0.96317 | . |******************* | 0.110631
10 4041.496 0.95808 | . |******************* | 0.116682
11 4020.042 0.95299 | . |******************* | 0.122375
12 3998.276 0.94783 | . |******************* | 0.127758
13 3976.780 0.94274 | . |******************* | 0.132868
14 3955.488 0.93769 | . |******************* | 0.137738
15 3934.776 0.93278 | . |******************* | 0.142391
16 3914.119 0.92788 | . |******************* | 0.146851
17 3893.536 0.92300 | . |****************** | 0.151134
18 3873.733 0.91831 | . |****************** | 0.155257
19 3854.524 0.91376 | . |****************** | 0.159232
20 3836.123 0.90939 | . |****************** | 0.163073
21 3818.315 0.90517 | . |****************** | 0.166790
22 3801.472 0.90118 | . |****************** | 0.170393
341
Autocorrelations
23 3784.634 0.89719 | . |****************** | 0.173890
24 3767.416 0.89311 | . |****************** | 0.177288

Zero Mean 0 0.5789 0.8269 0.58 0.8421
1 0.0065 0.6846 0.00 0.6846
2 -0.5529 0.5588 -0.30 0.5772
Single Mean 0 -0.3434 0.9380 -0.20 0.9361 0.38 0.9773
1 -2.1219 0.7642 -0.83 0.8106 0.52 0.9479
2 -3.9259 0.5477 -1.23 0.6626 0.89 0.8443
Trend 0 -1.6660 0.9778 -0.89 0.9557 1.61 0.8563
1 -3.7522 0.9007 -1.35 0.8753 1.44 0.8897
2 -5.7701 0.7626 -1.67 0.7646 1.68 0.8409
342
Autocorrelations
0 9.254701 1.00000 | |********************| 0
1 3.485519 0.37662 | .|******** | 0.027237
2 2.977391 0.32172 | .|****** | 0.030859
3 2.013368 0.21755 | .|**** | 0.033254
4 1.090005 0.11778 | .|** | 0.034294
5 1.333421 0.14408 | .|*** | 0.034593
6 0.487660 0.05269 | .|* | 0.035035
7 0.575578 0.06219 | .|* | 0.035094
8 0.623688 0.06739 | .|* | 0.035175
9 -0.560165 -.06053 | *|. | 0.035271
10 0.164246 0.01775 | .|. | 0.035348
11 0.065369 0.00706 | .|. | 0.035355
12 -0.573618 -.06198 | *|. | 0.035356
13 -0.757417 -.08184 | **|. | 0.035436
14 -1.059353 -.11447 | **|. | 0.035576
15 -0.366081 -.03956 | *|. | 0.035848
16 -0.113254 -.01224 | .|. | 0.035881
17 -0.748300 -.08086 | **|. | 0.035884
18 -0.668465 -.07223 | *|. | 0.036019
19 -0.917097 -.09910 | **|. | 0.036126
20 -0.693784 -.07497 | *|. | 0.036327
21 -0.890681 -.09624 | **|. | 0.036442
22 -0.040501 -.00438 | .|. | 0.036630
23 0.467134 0.05048 | .|* | 0.036630
24 0.348329 0.03764 | .|* | 0.036682

343
Zero Mean 0 -839.189 0.0001 -24.68 <.0001
1 -547.349 0.0001 -16.54 <.0001
2 -481.258 0.0001 -14.26 <.0001
Single Mean 0 -839.651 0.0001 -24.68 <.0001 304.53 0.0010
1 -547.930 0.0001 -16.54 <.0001 136.82 0.0010
2 -481.931 0.0001 -14.26 <.0001 101.64 0.0010
Trend 0 -841.129 0.0001 -24.70 <.0001 305.08 0.0010
1 -549.521 0.0001 -16.56 <.0001 137.07 0.0010
2 -484.053 0.0001 -14.28 <.0001 101.90 0.0010
AUTOCORRELATION


344
Test
AR(1) 1346.0414 <.0001
AR(2) 1346.4614 <.0001
AR(3) 1346.5739 <.0001
AR(4) 1346.5815 <.0001


345
Test
AR(1) 191.2203 <.0001
AR(2) 242.1242 <.0001
AR(3) 245.1931 <.0001
AR(4) 246.3835 <.0001
346
EQUITY
STATIONARITY

Autocorrelations
0 249.378 1.00000 | |********************| 0
1 248.417 0.99614 | .|********************| 0.027227
2 247.609 0.99290 | . |********************| 0.047037
3 246.940 0.99022 | . |********************| 0.060614
4 246.184 0.98719 | . |********************| 0.071609
5 245.425 0.98415 | . |********************| 0.081072
6 244.686 0.98119 | . |********************| 0.089491
7 243.937 0.97818 | . |********************| 0.097139
8 243.229 0.97534 | . |********************| 0.104185
9 242.490 0.97238 | . |******************* | 0.110747
10 241.705 0.96923 | . |******************* | 0.116905
11 240.929 0.96612 | . |******************* | 0.122717
12 240.148 0.96299 | . |******************* | 0.128231
13 239.418 0.96006 | . |******************* | 0.133484
14 238.648 0.95697 | . |******************* | 0.138508
15 237.855 0.95379 | . |******************* | 0.143326
16 237.143 0.95094 | . |******************* | 0.147956
17 236.390 0.94792 | . |******************* | 0.152420
18 235.585 0.94469 | . |******************* | 0.156729
19 234.870 0.94182 | . |******************* | 0.160894
20 234.126 0.93884 | . |******************* | 0.164931
21 233.357 0.93575 | . |******************* | 0.168846
22 232.604 0.93274 | . |******************* | 0.172647
23 231.820 0.92959 | . |******************* | 0.176343
24 231.056 0.92653 | . |******************* | 0.179939
347
Zero Mean 0 -0.0747 0.6660 -0.09 0.6525
1 -0.0144 0.6797 -0.02 0.6766
2 0.0375 0.6917 0.06 0.7017
Single Mean 0 -5.0474 0.4308 -1.87 0.3476 1.86 0.5930
1 -4.2772 0.5090 -1.77 0.3972 1.70 0.6344
2 -3.6810 0.5757 -1.70 0.4303 1.62 0.6547
Trend 0 -4.9522 0.8241 -1.29 0.8889 1.74 0.8285
1 -3.4287 0.9175 -1.00 0.9426 1.62 0.8535
2 -2.2030 0.9649 -0.72 0.9709 1.67 0.8424
348
Autocorrelations
0 1.353705 1.00000 | |********************| 0
1 -0.151396 -.11184 | **|. | 0.027237
2 -0.135305 -.09995 | **|. | 0.027575
3 0.078080 0.05768 | .|* | 0.027843
4 0.0075908 0.00561 | .|. | 0.027931
5 -0.0091749 -.00678 | .|. | 0.027932
6 0.0043845 0.00324 | .|. | 0.027933
7 -0.047377 -.03500 | *|. | 0.027934
8 0.031397 0.02319 | .|. | 0.027966
9 0.033343 0.02463 | .|. | 0.027980
10 0.0094551 0.00698 | .|. | 0.027996
11 0.0021680 0.00160 | .|. | 0.027998
12 -0.043065 -.03181 | *|. | 0.027998
13 0.041987 0.03102 | .|* | 0.028025
14 0.020932 0.01546 | .|. | 0.028050
15 -0.084157 -.06217 | *|. | 0.028056
16 0.040848 0.03017 | .|* | 0.028158
17 0.055943 0.04133 | .|* | 0.028182
18 -0.092526 -.06835 | *|. | 0.028227
19 0.019329 0.01428 | .|. | 0.028350
20 0.014307 0.01057 | .|. | 0.028355
21 -0.018658 -.01378 | .|. | 0.028358
22 0.031202 0.02305 | .|. | 0.028363
23 -0.019480 -.01439 | .|. | 0.028377
24 -0.045500 -.03361 | *|. | 0.028382

349
Zero Mean 0 -1497.57 0.0001 -41.03 <.0001
1 -1880.57 0.0001 -30.63 <.0001
2 -1680.60 0.0001 -22.70 <.0001
Single Mean 0 -1497.81 0.0001 -41.02 <.0001 841.25 0.0010
1 -1881.74 0.0001 -30.63 <.0001 469.08 0.0010
2 -1682.90 0.0001 -22.70 <.0001 257.68 0.0010
Trend 0 -1499.90 0.0001 -41.06 <.0001 843.14 0.0010
1 -1891.72 0.0001 -30.70 <.0001 471.13 0.0010
2 -1703.43 0.0001 -22.77 <.0001 259.33 0.0010
AUTOCORRELATION


350
Test
AR(1) 1338.7672 <.0001
AR(2) 1338.8374 <.0001
AR(3) 1338.8993 <.0001
AR(4) 1338.9091 <.0001


351
Test
AR(1) 16.8785 <.0001
AR(2) 34.1514 <.0001
AR(3) 35.6111 <.0001
AR(4) 35.6486 <.0001
MODEL
CO-INTEGRATION

integration.
0 0 0.0046 9.1014 15.34
1 1 0.0022 2.9383 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.21235 0.02732 7.77 0.0001 CDS (t-1)
AR1_1_2 -0.59805 0.06335 -9.44 0.0001 EQ (t-1)
AR2_1_1 0.19033 0.02713 7.02 0.0001 CDS (t-2)
AR2_1_2 -0.40986 0.06532 -6.27 0.0001 EQ (t-2)
AR3_1_1 0.08264 0.02648 3.12 0.0018 CDS (t-3)
AR3_1_2 -0.29584 0.06493 -4.56 0.0001 EQ (t-3)
EQ 1 diff Constant2 0.01656 0.03143 0.53 0.5985 1
AR1_2_1 0.00793 0.01191 0.67 0.5054 CDS (t-1)
AR1_2_2 -0.11887 0.02761 -4.31 0.0001 EQ (t-1)
AR2_2_1 0.00214 0.01182 0.18 0.8563 CDS (t-2)
AR2_2_2 -0.10533 0.02847 -3.70 0.0002 EQ (t-2)
AR3_2_1 0.00766 0.01154 0.66 0.5072 CDS (t-3)
AR3_2_2 0.04008 0.02830 1.42 0.1568 EQ (t-3)
352
Table 5.3

1 2 120.13 <0.0001
2 2 1.71 0.6353

Table 5.4
CDS 1diff 0.2499 2.64234 74.31 < 0.0001
EQ 1diff 0.0277 1.15150 6.34 < 0.0001
Table 5.5
Square
CDS 1diff 2.00236 9999.99 < 0.0001 42.89 < 0.0001
EQ 1diff 2.00283 2873.70 < 0.0001 37.40 < 0.0001
353
Appendix 32 - FINANCE
CDS
STATIONARITY

Autocorrelations
0 38766.778 1.00000 | |********************| 0
1 38567.323 0.99486 | .|********************| 0.027227
2 38334.250 0.98884 | . |********************| 0.046996
3 38094.764 0.98267 | . |********************| 0.060484
4 37853.425 0.97644 | . |********************| 0.071344
5 37618.029 0.97037 | . |******************* | 0.080644
6 37377.817 0.96417 | . |******************* | 0.088879
7 37137.588 0.95797 | . |******************* | 0.096321
8 36910.486 0.95212 | . |******************* | 0.103142
9 36697.294 0.94662 | . |******************* | 0.109464
10 36486.180 0.94117 | . |******************* | 0.115373
11 36269.514 0.93558 | . |******************* | 0.120930
12 36043.235 0.92975 | . |******************* | 0.126182
13 35821.442 0.92402 | . |****************** | 0.131162
14 35601.362 0.91835 | . |****************** | 0.135902
15 35382.205 0.91269 | . |****************** | 0.140427
16 35140.060 0.90645 | . |****************** | 0.144757
17 34857.523 0.89916 | . |****************** | 0.148905
18 34570.961 0.89177 | . |****************** | 0.152877
19 34282.021 0.88431 | . |****************** | 0.156686
20 33987.025 0.87670 | . |****************** | 0.160343
21 33684.687 0.86891 | . |***************** | 0.163858
22 33384.971 0.86117 | . |***************** | 0.167239
354
Autocorrelations
23 33106.608 0.85399 | . |***************** | 0.170494
24 32849.223 0.84735 | . |***************** | 0.173636

Zero Mean 0 3.9158 0.9998 2.55 0.9976
1 2.8577 0.9983 1.35 0.9565
2 3.3172 0.9994 1.74 0.9807
Single Mean 0 3.2145 0.9998 1.72 0.9997 3.46 0.1818
1 1.6568 0.9962 0.65 0.9910 1.26 0.7482
2 2.3257 0.9988 1.01 0.9967 1.80 0.6085
Trend 0 -0.2084 0.9952 -0.08 0.9952 3.06 0.5609
1 -3.3659 0.9206 -0.92 0.9526 2.04 0.7691
2 -2.0390 0.9693 -0.62 0.9776 2.20 0.7354
355
Autocorrelations
0 99.791817 1.00000 | |********************| 0
1 30.140767 0.30204 | .|****** | 0.027237
2 -0.205277 -.00206 | .|. | 0.029617
3 0.897811 0.00900 | .|. | 0.029617
4 4.415779 0.04425 | .|* | 0.029620
5 9.943450 0.09964 | .|** | 0.029669
6 0.302452 0.00303 | .|. | 0.029916
7 -7.720181 -.07736 | **|. | 0.029916
8 -4.685696 -.04695 | *|. | 0.030064
9 7.485209 0.07501 | .|** | 0.030118
10 12.417338 0.12443 | .|** | 0.030257
11 1.996119 0.02000 | .|. | 0.030634
12 -6.509141 -.06523 | *|. | 0.030644
13 -2.743187 -.02749 | *|. | 0.030746
14 -6.058306 -.06071 | *|. | 0.030765
15 3.697904 0.03706 | .|* | 0.030853
16 14.689218 0.14720 | .|*** | 0.030886
17 5.990550 0.06003 | .|* | 0.031403
18 2.402203 0.02407 | .|. | 0.031488
19 -0.350144 -.00351 | .|. | 0.031501
20 1.957254 0.01961 | .|. | 0.031501
21 -1.217113 -.01220 | .|. | 0.031511
22 -9.668025 -.09688 | **|. | 0.031514
23 -9.900200 -.09921 | **|. | 0.031734
24 -3.119820 -.03126 | *|. | 0.031963

356
Zero Mean 0 -937.219 0.0001 -26.79 <.0001
1 -1146.58 0.0001 -23.91 <.0001
2 -1004.08 0.0001 -19.08 <.0001
Single Mean 0 -939.995 0.0001 -26.84 <.0001 360.25 0.0010
1 -1154.19 0.0001 -23.98 <.0001 287.47 0.0010
2 -1015.78 0.0001 -19.16 <.0001 183.46 0.0010
Trend 0 -944.304 0.0001 -26.92 <.0001 362.46 0.0010
1 -1166.21 0.0001 -24.09 <.0001 290.13 0.0010
2 -1034.53 0.0001 -19.27 <.0001 185.66 0.0010
AUTOCORRELATION


357
Test
AR(1) 1345.2585 <.0001
AR(2) 1345.5477 <.0001
AR(3) 1345.5749 <.0001
AR(4) 1345.5789 <.0001


358
Test
AR(1) 123.0217 <.0001
AR(2) 135.8956 <.0001
AR(3) 138.3713 <.0001
AR(4) 139.4880 <.0001
359
EQUITY
STATIONARITY

Autocorrelations
0 139.068 1.00000 | |********************| 0
1 138.551 0.99628 | .|********************| 0.027227
2 138.076 0.99287 | . |********************| 0.047041
3 137.620 0.98959 | . |********************| 0.060617
4 137.137 0.98612 | . |********************| 0.071598
5 136.678 0.98282 | . |********************| 0.081043
6 136.229 0.97959 | . |********************| 0.089443
7 135.799 0.97650 | . |********************| 0.097071
8 135.358 0.97333 | . |******************* | 0.104098
9 134.911 0.97011 | . |******************* | 0.110639
10 134.444 0.96675 | . |******************* | 0.116774
11 133.987 0.96346 | . |******************* | 0.122564
12 133.524 0.96014 | . |******************* | 0.128055
13 133.063 0.95682 | . |******************* | 0.133285
14 132.578 0.95334 | . |******************* | 0.138283
15 132.128 0.95010 | . |******************* | 0.143072
16 131.674 0.94683 | . |******************* | 0.147675
17 131.178 0.94327 | . |******************* | 0.152109
18 130.649 0.93947 | . |******************* | 0.156385
19 130.125 0.93569 | . |******************* | 0.160514
20 129.587 0.93183 | . |******************* | 0.164507
21 129.042 0.92791 | . |******************* | 0.168375
22 128.523 0.92418 | . |****************** | 0.172124
23 127.980 0.92027 | . |****************** | 0.175764
24 127.458 0.91652 | . |****************** | 0.179300
360
Zero Mean 0 -0.5161 0.5667 -0.96 0.3012
1 -0.5023 0.5696 -1.01 0.2822
2 -0.4938 0.5715 -1.03 0.2727
Single Mean 0 0.4490 0.9758 0.21 0.9733 0.57 0.9318
1 0.7722 0.9845 0.39 0.9825 0.73 0.8856
2 0.9302 0.9878 0.49 0.9864 0.83 0.8593
Trend 0 -2.2636 0.9632 -0.91 0.9529 2.38 0.6987
1 -1.7913 0.9752 -0.78 0.9659 2.54 0.6664
2 -1.5668 0.9797 -0.71 0.9712 2.68 0.6388
361
Autocorrelations
0 0.469981 1.00000 | |********************| 0
1 -0.035676 -.07591 | **|. | 0.027237
2 -0.016783 -.03571 | *|. | 0.027393
3 0.0081230 0.01728 | .|. | 0.027428
4 -0.021869 -.04653 | *|. | 0.027436
5 -0.0031651 -.00673 | .|. | 0.027494
6 -0.026933 -.05731 | *|. | 0.027496
7 0.0033529 0.00713 | .|. | 0.027584
8 0.023700 0.05043 | .|* | 0.027585
9 -0.0069680 -.01483 | .|. | 0.027654
10 0.025006 0.05321 | .|* | 0.027660
11 0.0022158 0.00471 | .|. | 0.027735
12 -0.0035226 -.00750 | .|. | 0.027736
13 0.0068179 0.01451 | .|. | 0.027737
14 -0.023805 -.05065 | *|. | 0.027743
15 -0.029988 -.06381 | *|. | 0.027812
16 0.033078 0.07038 | .|* | 0.027920
17 0.038891 0.08275 | .|** | 0.028051
18 0.0019163 0.00408 | .|. | 0.028232
19 0.0029425 0.00626 | .|. | 0.028232
20 0.0011593 0.00247 | .|. | 0.028233
21 -0.033727 -.07176 | *|. | 0.028233
22 0.0092364 0.01965 | .|. | 0.028368
23 0.0069787 0.01485 | .|. | 0.028379
24 -0.0036346 -.00773 | .|. | 0.028384

362
Zero Mean 0 -1448.09 0.0001 -39.55 <.0001
1 -1570.02 0.0001 -28.00 <.0001
2 -1508.73 0.0001 -21.96 <.0001
Single Mean 0 -1449.27 0.0001 -39.57 <.0001 783.05 0.0010
1 -1574.41 0.0001 -28.03 <.0001 392.73 0.0010
2 -1517.93 0.0001 -21.99 <.0001 241.86 0.0010
Trend 0 -1453.41 0.0001 -39.68 <.0001 787.32 0.0010
1 -1589.84 0.0001 -28.15 <.0001 396.28 0.0010
2 -1550.28 0.0001 -22.13 <.0001 244.89 0.0010
AUTOCORRELATION


363
Test
AR(1) 1344.4342 <.0001
AR(2) 1344.4613 <.0001
AR(3) 1344.4695 <.0001
AR(4) 1344.4700 <.0001

364

Test
AR(1) 7.7687 0.0053
AR(2) 10.1012 0.0064
AR(3) 10.2759 0.0164
AR(4) 13.1233 0.0107
MODEL
CO-INTEGRATION

integration.
0 0 0.0046 9.1014 15.34
1 1 0.0022 2.9383 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.26240 0.02720 9.65 0.0001 CDS (t-1)
AR1_1_2 -4.54196 0.35951 -12.63 0.0001 EQ (t-1)
AR2_1_1 -0.08049 0.02567 -3.14 0.0017 CDS (t-2)
AR2_1_2 -1.74065 0.37845 -4.60 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.02440 0.01868 -1.31 0.1917 1
AR1_2_1 -0.00024 0.00208 -0.12 0.9075 CDS (t-1)
AR1_2_2 -0.08120 0.02746 -2.96 0.0032 EQ (t-1)
AR2_2_1 0.00418 0.00196 2.13 0.0333 CDS (t-2)
AR2_2_2 -0.03814 0.02891 -1.32 0.1873 EQ (t-2)
365
Table 5.3

1 2 170.05 < 0.0001
2 2 4.83 0.0892

Table 5.4
CDS 1diff 0.2020 8.94695 84.86 < 0.0001
EQ 1diff 0.0111 0.68344 3.75 0.0048
Table 5.5
Square
CDS 1diff 2.00133 9999.99 < 0.0001 48.50 < 0.0001
EQ 1diff 1.99951 1083.81 < 0.0001 84.00 < 0.0001
366
Appendix 33 - INDUSTRIALS
CDS
STATIONARITY

Autocorrelations
0 3908.722 1.00000 | |********************| 0
1 3899.947 0.99775 | .|********************| 0.027227
2 3889.413 0.99506 | . |********************| 0.047087
3 3877.232 0.99194 | . |********************| 0.060706
4 3863.875 0.98853 | . |********************| 0.071722
5 3850.199 0.98503 | . |********************| 0.081196
6 3835.705 0.98132 | . |********************| 0.089617
7 3820.774 0.97750 | . |********************| 0.097257
8 3805.195 0.97351 | . |******************* | 0.104286
9 3789.467 0.96949 | . |******************* | 0.110818
10 3773.721 0.96546 | . |******************* | 0.116936
11 3757.590 0.96133 | . |******************* | 0.122703
12 3740.542 0.95697 | . |******************* | 0.128165
13 3723.018 0.95249 | . |******************* | 0.133357
14 3705.439 0.94799 | . |******************* | 0.138308
15 3687.561 0.94342 | . |******************* | 0.143043
16 3668.954 0.93866 | . |******************* | 0.147584
17 3650.357 0.93390 | . |******************* | 0.151945
18 3631.714 0.92913 | . |******************* | 0.156142
19 3613.011 0.92435 | . |****************** | 0.160188
20 3594.960 0.91973 | . |****************** | 0.164094
21 3576.881 0.91510 | . |****************** | 0.167872
22 3559.110 0.91056 | . |****************** | 0.171530
367
Autocorrelations
23 3541.344 0.90601 | . |****************** | 0.175076
24 3523.541 0.90146 | . |****************** | 0.178518

Zero Mean 0 1.9360 0.9873 2.34 0.9958
1 1.4465 0.9637 1.11 0.9309
2 1.3146 0.9525 0.94 0.9084
Single Mean 0 1.4981 0.9950 1.25 0.9985 2.87 0.3340
1 0.4293 0.9751 0.23 0.9743 0.89 0.8437
2 0.1596 0.9649 0.08 0.9641 0.76 0.8778
Trend 0 -0.7764 0.9908 -0.51 0.9833 3.56 0.4604
1 -2.4732 0.9567 -1.02 0.9393 1.86 0.8051
2 -2.8844 0.9418 -1.12 0.9243 1.78 0.8206
368
Autocorrelations
0 4.150487 1.00000 | |********************| 0
1 1.768612 0.42612 | .|********* | 0.027237
2 0.967455 0.23309 | .|***** | 0.031800
3 0.525220 0.12654 | .|*** | 0.033043
4 0.198726 0.04788 | .|* | 0.033401
5 0.241685 0.05823 | .|* | 0.033452
6 -0.023423 -.00564 | .|. | 0.033527
7 0.169823 0.04092 | .|* | 0.033528
8 0.201247 0.04849 | .|* | 0.033565
9 0.353473 0.08516 | .|** | 0.033616
10 0.456020 0.10987 | .|** | 0.033776
11 0.376410 0.09069 | .|** | 0.034040
12 0.055861 0.01346 | .|. | 0.034219
13 -0.258181 -.06220 | *|. | 0.034223
14 -0.320003 -.07710 | **|. | 0.034307
15 0.049741 0.01198 | .|. | 0.034435
16 -0.061631 -.01485 | .|. | 0.034438
17 0.112526 0.02711 | .|* | 0.034443
18 -0.080162 -.01931 | .|. | 0.034459
19 -0.039146 -.00943 | .|. | 0.034467
20 0.0033157 0.00080 | .|. | 0.034469
21 -0.048974 -.01180 | .|. | 0.034469
22 0.080161 0.01931 | .|. | 0.034472
23 0.051850 0.01249 | .|. | 0.034480
24 0.203616 0.04906 | .|* | 0.034483

369
Zero Mean 0 -770.584 0.0001 -23.23 <.0001
1 -676.465 0.0001 -18.36 <.0001
2 -659.416 0.0001 -16.20 <.0001
Single Mean 0 -773.006 0.0001 -23.27 <.0001 270.71 0.0010
1 -680.336 0.0001 -18.40 <.0001 169.30 0.0010
2 -665.210 0.0001 -16.24 <.0001 131.95 0.0010
Trend 0 -776.877 0.0001 -23.34 <.0001 272.38 0.0010
1 -686.582 0.0001 -18.47 <.0001 170.62 0.0010
2 -674.977 0.0001 -16.32 <.0001 133.25 0.0010
AUTOCORRELATION


370
Test
AR(1) 1347.4668 <.0001
AR(2) 1347.7135 <.0001
AR(3) 1347.7196 <.0001
AR(4) 1347.7197 <.0001


371
Test
AR(1) 244.7730 <.0001
AR(2) 249.1645 <.0001
AR(3) 249.2433 <.0001
AR(4) 249.9192 <.0001
372
EQUITY
STATIONARITY

Autocorrelations
0 102.702 1.00000 | |********************| 0
1 102.341 0.99649 | .|********************| 0.027227
2 102.017 0.99333 | . |********************| 0.047048
3 101.713 0.99037 | . |********************| 0.060633
4 101.376 0.98709 | . |********************| 0.071627
5 101.043 0.98384 | . |********************| 0.081087
6 100.710 0.98061 | . |********************| 0.089499
7 100.369 0.97728 | . |********************| 0.097138
8 100.024 0.97393 | . |******************* | 0.104172
9 99.646275 0.97025 | . |******************* | 0.110716
10 99.254531 0.96643 | . |******************* | 0.116849
11 98.871142 0.96270 | . |******************* | 0.122631
12 98.466101 0.95876 | . |******************* | 0.128111
13 98.038953 0.95460 | . |******************* | 0.133324
14 97.589951 0.95023 | . |******************* | 0.138298
15 97.163812 0.94608 | . |******************* | 0.143056
16 96.748125 0.94203 | . |******************* | 0.147621
17 96.308266 0.93775 | . |******************* | 0.152012
18 95.846270 0.93325 | . |******************* | 0.156241
19 95.400022 0.92890 | . |******************* | 0.160320
20 94.960549 0.92462 | . |****************** | 0.164261
21 94.494908 0.92009 | . |****************** | 0.168075
22 94.036340 0.91562 | . |****************** | 0.171768
23 93.557545 0.91096 | . |****************** | 0.175349
24 93.093834 0.90645 | . |****************** | 0.178823
373
Zero Mean 0 -0.1453 0.6499 -0.29 0.5804
1 -0.1296 0.6535 -0.28 0.5835
2 -0.1199 0.6557 -0.28 0.5862
Single Mean 0 -2.7657 0.6856 -1.13 0.7047 0.64 0.9079
1 -2.2703 0.7463 -1.01 0.7501 0.52 0.9484
2 -2.0158 0.7769 -0.95 0.7741 0.45 0.9635
Trend 0 -1.4899 0.9811 -0.58 0.9795 1.95 0.7867
1 -0.9381 0.9891 -0.40 0.9875 2.17 0.7414
2 -0.6425 0.9921 -0.29 0.9909 2.38 0.7001
374
Autocorrelations
0 0.452876 1.00000 | |********************| 0
1 -0.038776 -.08562 | **|. | 0.027237
2 -0.020440 -.04513 | *|. | 0.027436
3 0.022012 0.04860 | .|* | 0.027491
4 0.0023457 0.00518 | .|. | 0.027554
5 0.0033104 0.00731 | .|. | 0.027555
6 0.0026680 0.00589 | .|. | 0.027557
7 -0.0048373 -.01068 | .|. | 0.027557
8 0.032224 0.07115 | .|* | 0.027561
9 0.0071505 0.01579 | .|. | 0.027696
10 0.011255 0.02485 | .|. | 0.027703
11 0.019335 0.04269 | .|* | 0.027720
12 0.0079126 0.01747 | .|. | 0.027768
13 0.022104 0.04881 | .|* | 0.027777
14 -0.015250 -.03367 | *|. | 0.027840
15 -0.030969 -.06838 | *|. | 0.027870
16 0.025607 0.05654 | .|* | 0.027995
17 0.028974 0.06398 | .|* | 0.028079
18 -0.023880 -.05273 | *|. | 0.028187
19 -0.0094179 -.02080 | .|. | 0.028260
20 0.0081998 0.01811 | .|. | 0.028271
21 -0.011560 -.02553 | *|. | 0.028280
22 0.016788 0.03707 | .|* | 0.028297
23 -0.0021127 -.00467 | .|. | 0.028333
24 -0.0056673 -.01251 | .|. | 0.028334

375
Zero Mean 0 -1462.36 0.0001 -39.97 <.0001
1 -1624.45 0.0001 -28.47 <.0001
2 -1430.01 0.0001 -21.56 <.0001
Single Mean 0 -1462.37 0.0001 -39.96 <.0001 798.31 0.0010
1 -1624.47 0.0001 -28.46 <.0001 405.10 0.0010
2 -1430.08 0.0001 -21.56 <.0001 232.34 0.0010
Trend 0 -1466.29 0.0001 -40.06 <.0001 802.29 0.0010
1 -1639.83 0.0001 -28.58 <.0001 408.55 0.0010
2 -1458.71 0.0001 -21.68 <.0001 235.05 0.0010
AUTOCORRELATION


376
Test
AR(1) 1341.5048 <.0001
AR(2) 1341.5424 <.0001
AR(3) 1341.5547 <.0001
AR(4) 1341.5627 <.0001


377
Test
AR(1) 9.8855 0.0017
AR(2) 13.6253 0.0011
AR(3) 15.8020 0.0012
AR(4) 15.9573 0.0031
MODEL
CO-INTEGRATION

integration.
0 0 0.0035 4.8609 15.34
1 1 0.0001 0.1502 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.31913 0.02729 11.69 0.0001 CDS (t-1)
AR1_1_2 -0.71310 0.07302 -9.77 0.0001 EQ (t-1)
AR2_1_1 0.09035 0.02640 3.42 0.0006 CDS (t-2)
AR2_1_2 -0.46635 0.07451 -6.26 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00135 0.01832 -0.07 0.9411 1
AR1_2_1 0.01561 0.01036 1.51 0.1321 CDS (t-1)
AR1_2_2 -0.08133 0.02772 -2.93 0.0034 EQ (t-1)
AR2_2_1 -0.01704 0.01002 -1.70 0.0893 CDS (t-2)
AR2_2_2 -0.04629 0.02829 -1.64 0.1021 EQ (t-2)
378
Table 5.3

1 2 121.51 <0.0001
2 2 3.69 0.1619

Table 5.4
CDS 1diff 0.2526 1.76556 113.29 < 0.0001
EQ 1diff 0.0128 0.67035 4.34 0.0017
Table 5.5
Square
CDS 1diff 2.00200 9999.99 < 0.0001 72.70 < 0.0001
EQ 1diff 1.99387 3173.27 < 0.0001 2.77 0.0963
379
Appendix 34 – MATERIALS
CDS
STATIONARITY

Autocorrelations
0 8778.257 1.00000 | |********************| 0
1 8759.437 0.99786 | .|********************| 0.027227
2 8735.818 0.99517 | . |********************| 0.047091
3 8706.796 0.99186 | . |********************| 0.060711
4 8675.155 0.98825 | . |********************| 0.071724
5 8642.960 0.98459 | . |********************| 0.081193
6 8608.155 0.98062 | . |********************| 0.089608
7 8572.005 0.97650 | . |********************| 0.097238
8 8534.490 0.97223 | . |******************* | 0.104254
9 8496.768 0.96793 | . |******************* | 0.110771
10 8459.596 0.96370 | . |******************* | 0.116873
11 8421.415 0.95935 | . |******************* | 0.122622
12 8381.491 0.95480 | . |******************* | 0.128065
13 8339.299 0.94999 | . |******************* | 0.133238
14 8296.205 0.94509 | . |******************* | 0.138168
15 8251.391 0.93998 | . |******************* | 0.142879
16 8205.933 0.93480 | . |******************* | 0.147392
17 8160.215 0.92959 | . |******************* | 0.151724
18 8113.992 0.92433 | . |****************** | 0.155889
19 8068.053 0.91910 | . |****************** | 0.159900
20 8022.561 0.91391 | . |****************** | 0.163769
21 7977.688 0.90880 | . |****************** | 0.167507
22 7936.141 0.90407 | . |****************** | 0.171123
380
Autocorrelations
23 7894.749 0.89935 | . |****************** | 0.174628
24 7852.938 0.89459 | . |****************** | 0.178028

Zero Mean 0 1.8943 0.9861 1.98 0.9891
1 1.1834 0.9384 0.79 0.8833
2 0.9671 0.9075 0.60 0.8455
Single Mean 0 1.2365 0.9924 0.99 0.9966 2.31 0.4788
1 0.0535 0.9601 0.03 0.9599 0.72 0.8867
2 -0.3373 0.9383 -0.16 0.9409 0.65 0.9061
Trend 0 -0.9722 0.9887 -0.61 0.9778 2.98 0.5776
1 -2.8328 0.9438 -1.14 0.9203 1.75 0.8271
2 -3.2916 0.9242 -1.23 0.9024 1.60 0.8570

Autocorrelations
0 10.055716 1.00000 | |********************| 0
1 4.208079 0.41848 | .|******** | 0.027237
2 2.305715 0.22929 | .|***** | 0.031649
3 1.096662 0.10906 | .|** | 0.032858
4 0.150518 0.01497 | .|. | 0.033126
5 0.327792 0.03260 | .|* | 0.033131
6 0.135289 0.01345 | .|. | 0.033155
7 0.435272 0.04329 | .|* | 0.033159
8 0.332518 0.03307 | .|* | 0.033201
381
Autocorrelations
9 0.601926 0.05986 | .|* | 0.033225
10 1.185240 0.11787 | .|** | 0.033305
11 0.660461 0.06568 | .|* | 0.033613
12 0.775218 0.07709 | .|** | 0.033708
13 -0.372267 -.03702 | *|. | 0.033838
14 -0.512555 -.05097 | *|. | 0.033869
15 0.428474 0.04261 | .|* | 0.033925
16 0.346977 0.03451 | .|* | 0.033965
17 0.968031 0.09627 | .|** | 0.033991
18 -0.301828 -.03002 | *|. | 0.034193
19 -0.896999 -.08920 | **|. | 0.034212
20 -0.817334 -.08128 | **|. | 0.034384
21 -1.094416 -.10884 | **|. | 0.034527
22 0.042595 0.00424 | .|. | 0.034780
23 0.294423 0.02928 | .|* | 0.034781
24 0.776731 0.07724 | .|** | 0.034799

Zero Mean 0 -780.473 0.0001 -23.41 <.0001
1 -673.768 0.0001 -18.18 <.0001
2 -686.641 0.0001 -16.27 <.0001
Single Mean 0 -782.591 0.0001 -23.45 <.0001 274.92 0.0010
1 -677.346 0.0001 -18.21 <.0001 165.85 0.0010
2 -692.435 0.0001 -16.31 <.0001 133.01 0.0010
Trend 0 -785.866 0.0001 -23.51 <.0001 276.26 0.0010
1 -682.667 0.0001 -18.26 <.0001 166.77 0.0010
382
2 -701.459 0.0001 -16.37 <.0001 133.97 0.0010
AUTOCORRELATION


383
Test
AR(1) 1347.3421 <.0001
AR(2) 1347.5942 <.0001
AR(3) 1347.6044 <.0001
AR(4) 1347.6045 <.0001


384
Test
AR(1) 236.3672 <.0001
AR(2) 241.8185 <.0001
AR(3) 241.9057 <.0001
AR(4) 244.6713 <.0001
385
EQUITY
STATIONARITY

Autocorrelations
0 82.265507 1.00000 | |********************| 0
1 81.880211 0.99532 | .|********************| 0.027227
2 81.542050 0.99121 | . |********************| 0.047011
3 81.230599 0.98742 | . |********************| 0.060553
4 80.894581 0.98334 | . |********************| 0.071499
5 80.571173 0.97940 | . |********************| 0.080906
6 80.259535 0.97562 | . |********************| 0.089263
7 79.916965 0.97145 | . |******************* | 0.096845
8 79.591327 0.96749 | . |******************* | 0.103818
9 79.248333 0.96332 | . |******************* | 0.110299
10 78.913534 0.95925 | . |******************* | 0.116369
11 78.594098 0.95537 | . |******************* | 0.122090
12 78.242578 0.95110 | . |******************* | 0.127511
13 77.884626 0.94675 | . |******************* | 0.132666
14 77.511682 0.94221 | . |******************* | 0.137583
15 77.126933 0.93754 | . |******************* | 0.142286
16 76.768805 0.93318 | . |******************* | 0.146794
17 76.354520 0.92815 | . |******************* | 0.151128
18 75.945160 0.92317 | . |****************** | 0.155296
19 75.569350 0.91860 | . |****************** | 0.159312
20 75.192813 0.91403 | . |****************** | 0.163191
21 74.790800 0.90914 | . |****************** | 0.166943
22 74.404646 0.90445 | . |****************** | 0.170574
23 73.978291 0.89926 | . |****************** | 0.174092
24 73.578274 0.89440 | . |****************** | 0.177502
386
Zero Mean 0 -0.2774 0.6199 -0.47 0.5122
1 -0.2669 0.6223 -0.48 0.5058
2 -0.2443 0.6274 -0.47 0.5107
Single Mean 0 -4.3772 0.4984 -1.37 0.5991 0.96 0.8249
1 -3.6457 0.5798 -1.22 0.6673 0.78 0.8712
2 -3.1415 0.6397 -1.12 0.7103 0.66 0.9023
Trend 0 -3.6256 0.9075 -1.08 0.9299 1.23 0.9301
1 -2.8603 0.9428 -0.92 0.9525 1.11 0.9525
2 -2.2763 0.9628 -0.78 0.9663 1.12 0.9518
387
Autocorrelations
0 0.622678 1.00000 | |********************| 0
1 -0.044814 -.07197 | *|. | 0.027237
2 -0.035961 -.05775 | *|. | 0.027377
3 0.016279 0.02614 | .|* | 0.027468
4 -0.0050114 -.00805 | .|. | 0.027486
5 -0.0078409 -.01259 | .|. | 0.027488
6 0.014364 0.02307 | .|. | 0.027492
7 -0.016833 -.02703 | *|. | 0.027507
8 0.012666 0.02034 | .|. | 0.027526
9 -0.018773 -.03015 | *|. | 0.027537
10 0.00072302 0.00116 | .|. | 0.027562
11 0.030825 0.04950 | .|* | 0.027562
12 0.00042150 0.00068 | .|. | 0.027628
13 0.0089060 0.01430 | .|. | 0.027628
14 0.013307 0.02137 | .|. | 0.027633
15 -0.044552 -.07155 | *|. | 0.027646
16 0.054861 0.08810 | .|** | 0.027783
17 0.0049485 0.00795 | .|. | 0.027989
18 -0.030125 -.04838 | *|. | 0.027991
19 -0.0059309 -.00952 | .|. | 0.028053
20 0.018304 0.02940 | .|* | 0.028055
21 -0.0031168 -.00501 | .|. | 0.028078
22 0.037270 0.05986 | .|* | 0.028079
23 -0.017136 -.02752 | *|. | 0.028173
24 0.0022805 0.00366 | .|. | 0.028193

388
Zero Mean 0 -1443.89 0.0001 -39.44 <.0001
1 -1637.28 0.0001 -28.59 <.0001
2 -1547.24 0.0001 -22.12 <.0001
Single Mean 0 -1443.95 0.0001 -39.43 <.0001 777.38 0.0010
1 -1637.53 0.0001 -28.58 <.0001 408.31 0.0010
2 -1547.76 0.0001 -22.11 <.0001 244.52 0.0010
Trend 0 -1445.29 0.0001 -39.45 <.0001 778.29 0.0010
1 -1643.02 0.0001 -28.61 <.0001 409.32 0.0010
2 -1559.37 0.0001 -22.16 <.0001 245.44 0.0010
AUTOCORRELATION


389
Test
AR(1) 1338.3227 <.0001
AR(2) 1338.3792 <.0001
AR(3) 1338.4137 <.0001
AR(4) 1338.4181 <.0001



Test
390
AR(1) 6.9823 0.0082
AR(2) 12.3551 0.0021
AR(3) 12.7537 0.0052
AR(4) 12.8492 0.0120
MODEL
CO-INTEGRATION

integration.
0 0 0.0024 3.2938 15.34
1 1 0.0000 0.0388 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.33918 0.02729 12.43 0.0001 CDS (t-1)
AR1_1_2 -0.85551 0.09787 -8.74 0.0001 EQ (t-1)
AR2_1_1 0.10626 0.02714 3.91 0.0001 CDS (t-2)
AR2_1_2 -0.39305 0.09925 -3.96 0.0001 EQ (t-2)
EQ 1 diff Constant2 -0.00908 0.02145 -0.42 0.6722 1
AR1_2_1 0.01706 0.00768 2.22 0.0265 CDS (t-1)
AR1_2_2 -0.07155 0.02754 -2.60 0.0095 EQ (t-1)
AR2_2_1 0.00308 0.00764 0.40 0.6870 CDS (t-2)
AR2_2_2 -0.04716 0.02792 -1.69 0.0915 EQ (t-2)
Table 5.3
391
1 2 86.32 < 0.0001
2 2 7.17 0.0277

Table 5.4
CDS 1diff 0.2291 2.79033 99.64 < 0.0001
EQ 1diff 0.0144 0.78508 4.90 < 0.0006
Table 5.5
Square
CDS 1diff 2.01153 9999.99 < 0.0001 88.99 < 0.0001
EQ 1diff 1.99761 1160.02 < 0.0001 17.97 < 0.0001
392
Appendix 35 - TECHNOLOGY
CDS
STATIONARITY

Autocorrelations
0 24993.343 1.00000 | |********************| 0
1 24943.373 0.99800 | .|********************| 0.027227
2 24877.597 0.99537 | . |********************| 0.047095
3 24803.204 0.99239 | . |********************| 0.060719
4 24718.809 0.98902 | . |********************| 0.071742
5 24629.097 0.98543 | . |********************| 0.081223
6 24539.159 0.98183 | . |********************| 0.089648
7 24442.865 0.97798 | . |********************| 0.097293
8 24342.943 0.97398 | . |******************* | 0.104326
9 24237.792 0.96977 | . |******************* | 0.110862
10 24126.997 0.96534 | . |******************* | 0.116982
11 24012.732 0.96077 | . |******************* | 0.122745
12 23889.545 0.95584 | . |******************* | 0.128198
13 23762.091 0.95074 | . |******************* | 0.133377
14 23628.127 0.94538 | . |******************* | 0.138309
15 23491.411 0.93991 | . |******************* | 0.143019
16 23349.498 0.93423 | . |******************* | 0.147527
17 23202.561 0.92835 | . |******************* | 0.151849
18 23048.094 0.92217 | . |****************** | 0.156000
19 22892.944 0.91596 | . |****************** | 0.159990
20 22738.844 0.90980 | . |****************** | 0.163831
21 22583.976 0.90360 | . |****************** | 0.167534
22 22430.654 0.89747 | . |****************** | 0.171109
393
Autocorrelations
23 22276.580 0.89130 | . |****************** | 0.174563
24 22120.750 0.88507 | . |****************** | 0.177905

Zero Mean 0 0.5964 0.8312 0.44 0.8082
1 -0.0460 0.6725 -0.03 0.6746
2 -0.0470 0.6723 -0.03 0.6745
Single Mean 0 -0.5247 0.9255 -0.30 0.9226 0.62 0.9170
1 -1.5824 0.8268 -0.70 0.8452 0.59 0.9264
2 -1.5859 0.8264 -0.70 0.8451 0.59 0.9263
Trend 0 -3.0016 0.9370 -1.30 0.8862 1.42 0.8945
1 -4.7601 0.8377 -1.60 0.7929 1.60 0.8578
2 -4.7670 0.8372 -1.60 0.7932 1.60 0.8581
394
Autocorrelations
0 56.783705 1.00000 | |********************| 0
1 14.154276 0.24927 | .|***** | 0.027237
2 3.467087 0.06106 | .|* | 0.028880
3 4.565089 0.08039 | .|** | 0.028975
4 4.336537 0.07637 | .|** | 0.029140
5 -1.252798 -.02206 | .|. | 0.029288
6 2.923055 0.05148 | .|* | 0.029301
7 2.650856 0.04668 | .|* | 0.029368
8 4.394004 0.07738 | .|** | 0.029423
9 5.169427 0.09104 | .|** | 0.029573
10 1.650272 0.02906 | .|* | 0.029780
11 1.221450 0.02151 | .|. | 0.029801
12 1.606996 0.02830 | .|* | 0.029813
13 3.235877 0.05699 | .|* | 0.029833
14 -0.273949 -.00482 | .|. | 0.029913
15 -0.182206 -.00321 | .|. | 0.029914
16 4.474932 0.07881 | .|** | 0.029914
17 8.294841 0.14608 | .|*** | 0.030068
18 0.899745 0.01585 | .|. | 0.030590
19 -2.398409 -.04224 | *|. | 0.030596
20 0.262446 0.00462 | .|. | 0.030639
21 -1.166632 -.02055 | .|. | 0.030640
22 0.877324 0.01545 | .|. | 0.030650
23 1.940857 0.03418 | .|* | 0.030656
24 0.168153 0.00296 | .|. | 0.030684

395
Zero Mean 0 -1010.00 0.0001 -28.40 <.0001
1 -1008.63 0.0001 -22.35 <.0001
2 -827.718 0.0001 -17.58 <.0001
Single Mean 0 -1010.88 0.0001 -28.41 <.0001 403.47 0.0010
1 -1010.73 0.0001 -22.36 <.0001 249.98 0.0010
2 -830.675 0.0001 -17.59 <.0001 154.68 0.0010
Trend 0 -1011.75 0.0001 -28.41 <.0001 403.68 0.0010
1 -1012.89 0.0001 -22.37 <.0001 250.23 0.0010
2 -833.741 0.0001 -17.60 <.0001 154.86 0.0010
AUTOCORRELATION


396
Test
AR(1) 1345.4414 <.0001
AR(2) 1345.6153 <.0001
AR(3) 1345.6154 <.0001
AR(4) 1345.6320 <.0001


397
Test
AR(1) 73.2529 <.0001
AR(2) 73.4016 <.0001
AR(3) 80.2641 <.0001
AR(4) 82.7528 <.0001
398
EQUITY
STATIONARITY

Autocorrelations
0 36.997872 1.00000 | |********************| 0
1 36.867020 0.99646 | .|********************| 0.027227
2 36.742200 0.99309 | . |********************| 0.047047
3 36.626338 0.98996 | . |********************| 0.060626
4 36.495172 0.98641 | . |********************| 0.071614
5 36.363491 0.98285 | . |********************| 0.081062
6 36.236296 0.97942 | . |********************| 0.089461
7 36.113911 0.97611 | . |********************| 0.097085
8 35.992719 0.97283 | . |******************* | 0.104106
9 35.866040 0.96941 | . |******************* | 0.110640
10 35.738431 0.96596 | . |******************* | 0.116766
11 35.613937 0.96259 | . |******************* | 0.122547
12 35.480939 0.95900 | . |******************* | 0.128029
13 35.328127 0.95487 | . |******************* | 0.133248
14 35.180268 0.95087 | . |******************* | 0.138227
15 35.037164 0.94700 | . |******************* | 0.142994
16 34.889043 0.94300 | . |******************* | 0.147570
17 34.730842 0.93873 | . |******************* | 0.151971
18 34.579925 0.93465 | . |******************* | 0.156210
19 34.440694 0.93088 | . |******************* | 0.160302
20 34.292489 0.92688 | . |******************* | 0.164261
21 34.137799 0.92270 | . |****************** | 0.168093
22 33.989442 0.91869 | . |****************** | 0.171806
23 33.833186 0.91446 | . |****************** | 0.175410
24 33.677837 0.91026 | . |****************** | 0.178909
399
Zero Mean 0 -0.3978 0.5927 -0.90 0.3255
1 -0.4114 0.5896 -0.98 0.2907
2 -0.4036 0.5914 -1.02 0.2760
Single Mean 0 -1.0679 0.8799 -0.44 0.8996 0.45 0.9642
1 -0.7971 0.9042 -0.35 0.9155 0.50 0.9527
2 -0.5068 0.9268 -0.23 0.9318 0.52 0.9458
Trend 0 -3.4967 0.9142 -1.26 0.8971 1.65 0.8470
1 -2.9965 0.9372 -1.13 0.9217 1.47 0.8828
2 -2.6019 0.9524 -1.04 0.9364 1.47 0.8835
400
Autocorrelations
0 0.159942 1.00000 | |********************| 0
1 -0.0081138 -.05073 | *|. | 0.027237
2 -0.0088257 -.05518 | *|. | 0.027307
3 0.011377 0.07113 | .|* | 0.027389
4 -0.0002268 -.00142 | .|. | 0.027526
5 -0.0028186 -.01762 | .|. | 0.027526
6 -0.0065333 -.04085 | *|. | 0.027534
7 -0.0004433 -.00277 | .|. | 0.027579
8 0.0054786 0.03425 | .|* | 0.027580
9 -0.0021378 -.01337 | .|. | 0.027611
10 0.0013237 0.00828 | .|. | 0.027616
11 0.0077277 0.04832 | .|* | 0.027618
12 0.013927 0.08708 | .|** | 0.027680
13 -0.0044285 -.02769 | *|. | 0.027883
14 -0.0004518 -.00282 | .|. | 0.027903
15 0.00065713 0.00411 | .|. | 0.027903
16 0.0072044 0.04504 | .|* | 0.027904
17 -0.0016054 -.01004 | .|. | 0.027958
18 -0.0088390 -.05526 | *|. | 0.027960
19 0.0053766 0.03362 | .|* | 0.028041
20 0.00081319 0.00508 | .|. | 0.028071
21 -0.0095241 -.05955 | *|. | 0.028072
22 0.0055897 0.03495 | .|* | 0.028165
23 0.0026859 0.01679 | .|. | 0.028198
24 0.0023691 0.01481 | .|. | 0.028205

401
Zero Mean 0 -1414.55 0.0001 -38.63 <.0001
1 -1585.81 0.0001 -28.16 <.0001
2 -1291.42 0.0001 -20.86 <.0001
Single Mean 0 -1415.35 0.0001 -38.64 <.0001 746.52 0.0010
1 -1588.87 0.0001 -28.18 <.0001 397.02 0.0010
2 -1296.43 0.0001 -20.88 <.0001 218.06 0.0010
Trend 0 -1417.07 0.0001 -38.67 <.0001 747.72 0.0010
1 -1595.19 0.0001 -28.22 <.0001 398.20 0.0010
2 -1306.69 0.0001 -20.93 <.0001 218.98 0.0010
AUTOCORRELATION


402
Test
AR(1) 1343.6134 <.0001
AR(2) 1343.6221 <.0001
AR(3) 1343.6382 <.0001
AR(4) 1343.6642 <.0001


403
Test
AR(1) 3.4402 0.0636
AR(2) 7.9636 0.0187
AR(3) 14.8920 0.0019
AR(4) 14.9742 0.0048
MODEL
CO-INTEGRATION

integration.
0 0 0.0145 19.8253 15.34
1 1 0.0001 0.1111 3.84
VECM-MODEL

Variable 1
CDS 0.37201
EQUITY 0.01378

Variable 1
CDS -0.00032
EQUITY -0.87574
404
Table 5.4
CDS Constant1 -0.00577 0.15211 -0.04 0.9697 1
AR1_1_1 -0.00012 0.00404 CDS (t-1)
AR1_1_2 0 0.00015 EQ (t-1)
AR2_1_1 -0.0502 0.02744 -1.83 0.0676 D_CDS (t-1)
AR2_1_2 0.00054 0.00144 0.37 0.7091 D_EQ (t-1)
EQ Constant2 12.37582 2.75475 4.49 0.0001 1
AR1_2_1 -0.32578 0.07323 CDS (t-1)
AR1_2_2 -0.01206 0.00271 EQ (t-1)
AR2_2_1 -1.12926 0.49695 -2.27 0.0232 D_CDS (t-1)
AR2_2_2 0.24236 0.02617 9.26 0.0001 D_EQ (t-1)
Table 5.5

1 2 27.64 <.0001
2 2 0.13 0.9363

Table 5.6
CDS 0.0027 0.39893 0.9 0.461
EQ 0.0814 7.22477 29.73 <.0001
Table 5.7
Square
CDS 2.00696 2885.56 <.0001 0.36 0.5471
EQ 2.00653 9999.99 <.0001 17.42 <.0001
405
Appendix 36 - UTILITIES
CDS
STATIONARITY

Autocorrelations
0 5269.100 1.00000 | |********************| 0
1 5254.448 0.99722 | .|********************| 0.027227
2 5236.872 0.99388 | . |********************| 0.047071
3 5216.790 0.99007 | . |********************| 0.060664
4 5195.090 0.98595 | . |********************| 0.071648
5 5172.598 0.98169 | . |********************| 0.081084
6 5149.365 0.97728 | . |********************| 0.089462
7 5125.314 0.97271 | . |******************* | 0.097054
8 5100.845 0.96807 | . |******************* | 0.104030
9 5076.781 0.96350 | . |******************* | 0.110506
10 5053.481 0.95908 | . |******************* | 0.116567
11 5029.550 0.95454 | . |******************* | 0.122277
12 5005.013 0.94988 | . |******************* | 0.127681
13 4979.988 0.94513 | . |******************* | 0.132816
14 4954.142 0.94023 | . |******************* | 0.137712
15 4928.560 0.93537 | . |******************* | 0.142391
16 4903.013 0.93052 | . |******************* | 0.146875
17 4877.518 0.92568 | . |******************* | 0.151182
18 4851.810 0.92080 | . |****************** | 0.155327
19 4825.678 0.91584 | . |****************** | 0.159322
20 4799.633 0.91090 | . |****************** | 0.163178
21 4773.904 0.90602 | . |****************** | 0.166905
22 4749.265 0.90134 | . |****************** | 0.170511
406
Autocorrelations
23 4724.370 0.89662 | . |****************** | 0.174008
24 4699.036 0.89181 | . |****************** | 0.177399

Zero Mean 0 1.5397 0.9701 1.56 0.9711
1 1.1954 0.9398 0.93 0.9060
2 0.9860 0.9107 0.68 0.8632
Single Mean 0 0.7816 0.9848 0.47 0.9858 1.37 0.7189
1 -0.1898 0.9473 -0.09 0.9489 0.75 0.8794
2 -0.8141 0.9028 -0.34 0.9169 0.67 0.9004
Trend 0 -1.0042 0.9883 -0.51 0.9829 1.60 0.8575
1 -2.3241 0.9614 -0.92 0.9528 1.26 0.9243
2 -3.1122 0.9323 -1.10 0.9279 1.23 0.9301
407
Autocorrelations
0 10.647735 1.00000 | |********************| 0
1 2.745465 0.25784 | .|***** | 0.027237
2 1.779954 0.16717 | .|*** | 0.028991
3 1.081041 0.10153 | .|** | 0.029698
4 0.783882 0.07362 | .|* | 0.029954
5 0.626287 0.05882 | .|* | 0.030088
6 0.646695 0.06074 | .|* | 0.030173
7 0.202470 0.01902 | .|. | 0.030264
8 -0.474517 -.04457 | *|. | 0.030272
9 -0.059165 -.00556 | .|. | 0.030321
10 0.380493 0.03573 | .|* | 0.030322
11 0.072110 0.00677 | .|. | 0.030353
12 0.022059 0.00207 | .|. | 0.030354
13 -0.372897 -.03502 | *|. | 0.030354
14 -0.477776 -.04487 | *|. | 0.030384
15 -0.262204 -.02463 | .|. | 0.030433
16 -0.108146 -.01016 | .|. | 0.030448
17 0.307008 0.02883 | .|* | 0.030451
18 0.404897 0.03803 | .|* | 0.030471
19 -0.169795 -.01595 | .|. | 0.030506
20 -0.302990 -.02846 | *|. | 0.030512
21 -0.518988 -.04874 | *|. | 0.030532
22 0.264432 0.02483 | .|. | 0.030590
23 0.494075 0.04640 | .|* | 0.030605
24 0.024570 0.00231 | .|. | 0.030657

408
Zero Mean 0 -997.747 0.0001 -28.14 <.0001
1 -800.524 0.0001 -19.98 <.0001
2 -722.357 0.0001 -16.83 <.0001
Single Mean 0 -999.636 0.0001 -28.17 <.0001 396.72 0.0010
1 -803.762 0.0001 -20.01 <.0001 200.26 0.0010
2 -726.901 0.0001 -16.86 <.0001 142.14 0.0010
Trend 0 -1001.82 0.0001 -28.21 <.0001 397.77 0.0010
1 -807.382 0.0001 -20.05 <.0001 200.93 0.0010
2 -732.159 0.0001 -16.90 <.0001 142.76 0.0010
AUTOCORRELATION


409
Test
AR(1) 1346.0281 <.0001
AR(2) 1346.1967 <.0001
AR(3) 1346.2296 <.0001
AR(4) 1346.2332 <.0001


410
Test
AR(1) 89.6325 <.0001
AR(2) 104.3452 <.0001
AR(3) 106.1970 <.0001
AR(4) 107.0599 <.0001
411
EQUITY
STATIONARITY

Autocorrelations
0 35.478533 1.00000 | |********************| 0
1 35.320726 0.99555 | .|********************| 0.027227
2 35.177059 0.99150 | . |********************| 0.047018
3 35.049269 0.98790 | . |********************| 0.060566
4 34.911052 0.98400 | . |********************| 0.071520
5 34.770659 0.98005 | . |********************| 0.080936
6 34.632784 0.97616 | . |********************| 0.089301
7 34.500936 0.97245 | . |******************* | 0.096889
8 34.381309 0.96907 | . |******************* | 0.103872
9 34.244012 0.96520 | . |******************* | 0.110371
10 34.121553 0.96175 | . |******************* | 0.116460
11 33.999180 0.95830 | . |******************* | 0.122206
12 33.864873 0.95452 | . |******************* | 0.127655
13 33.721592 0.95048 | . |******************* | 0.132840
14 33.578072 0.94643 | . |******************* | 0.137789
15 33.431651 0.94231 | . |******************* | 0.142527
16 33.291457 0.93835 | . |******************* | 0.147073
17 33.142647 0.93416 | . |******************* | 0.151446
18 32.997347 0.93007 | . |******************* | 0.155658
19 32.863716 0.92630 | . |******************* | 0.159725
20 32.727063 0.92245 | . |****************** | 0.163659
21 32.586493 0.91848 | . |****************** | 0.167468
22 32.449157 0.91461 | . |****************** | 0.171162
23 32.301806 0.91046 | . |****************** | 0.174747
24 32.153029 0.90627 | . |****************** | 0.178229
412
Zero Mean 0 -0.2145 0.6342 -0.48 0.5087
1 -0.1980 0.6379 -0.48 0.5074
2 -0.1840 0.6411 -0.49 0.5049
Single Mean 0 -2.8041 0.6809 -0.99 0.7597 0.54 0.9406
1 -2.1598 0.7597 -0.83 0.8106 0.40 0.9739
2 -1.6244 0.8222 -0.68 0.8505 0.30 0.9896
Trend 0 -1.8390 0.9741 -0.63 0.9767 1.52 0.8739
1 -1.1361 0.9866 -0.42 0.9866 1.68 0.8406
2 -0.5480 0.9928 -0.22 0.9925 1.95 0.7875
413
Autocorrelations
0 0.211708 1.00000 | |********************| 0
1 -0.018419 -.08700 | **|. | 0.027237
2 -0.016377 -.07735 | **|. | 0.027442
3 0.0092569 0.04372 | .|* | 0.027603
4 0.0023712 0.01120 | .|. | 0.027655
5 -0.0045681 -.02158 | .|. | 0.027658
6 -0.0062197 -.02938 | *|. | 0.027671
7 -0.012775 -.06034 | *|. | 0.027694
8 0.020908 0.09876 | .|** | 0.027791
9 -0.016635 -.07857 | **|. | 0.028050
10 0.0033217 0.01569 | .|. | 0.028213
11 0.011674 0.05514 | .|* | 0.028219
12 0.0087755 0.04145 | .|* | 0.028299
13 -0.0008556 -.00404 | .|. | 0.028344
14 0.0080236 0.03790 | .|* | 0.028345
15 -0.0075815 -.03581 | *|. | 0.028382
16 0.0049712 0.02348 | .|. | 0.028416
17 -0.0023877 -.01128 | .|. | 0.028430
18 -0.0089748 -.04239 | *|. | 0.028434
19 0.0027290 0.01289 | .|. | 0.028480
20 0.0016056 0.00758 | .|. | 0.028485
21 -0.0036523 -.01725 | .|. | 0.028486
22 0.0077155 0.03644 | .|* | 0.028494
23 0.0029206 0.01380 | .|. | 0.028529
24 -0.0054324 -.02566 | *|. | 0.028533

414
Zero Mean 0 -1464.17 0.0001 -40.01 <.0001
1 -1736.89 0.0001 -29.43 <.0001
2 -1577.57 0.0001 -22.26 <.0001
Single Mean 0 -1464.30 0.0001 -40.00 <.0001 800.04 0.0010
1 -1737.42 0.0001 -29.43 <.0001 432.96 0.0010
2 -1578.66 0.0001 -22.25 <.0001 247.61 0.0010
Trend 0 -1467.29 0.0001 -40.07 <.0001 802.94 0.0010
1 -1750.42 0.0001 -29.52 <.0001 435.80 0.0010
2 -1604.60 0.0001 -22.35 <.0001 249.87 0.0010
AUTOCORRELATION


415
Test
AR(1) 1340.2072 <.0001
AR(2) 1340.2602 <.0001
AR(3) 1340.3101 <.0001
AR(4) 1340.3161 <.0001


416
Test
AR(1) 10.2127 0.0014
AR(2) 20.0209 <.0001
AR(3) 21.1660 <.0001
AR(4) 21.3425 0.0003
MODEL
CO-INTEGRATION

integration.
0 0 0.0054 7.7109 15.34
1 1 0.0003 0.3954 3.84
VAR-MODEL
Table 5.2
AR1_1_1 0.23780 0.02658 8.95 0.0001 CDS (t-1)
AR1_1_2 -0.81805 0.18857 -4.34 0.0001 EQ (t-1)
EQ 1 diff Constant2 -0.00399 0.01252 -0.32 0.7499 1
AR1_2_1 -0.00310 0.00389 -0.80 0.4260 CDS (t-1)
AR1_2_2 -0.09091 0.02760 -3.29 0.0010 EQ (t-1)
417
Table 5.3

1 2 18.82 < 0.0001
2 2 0.63 0.4258

Table 5.4
CDS 1diff 0.0794 3.13547 57.95 < 0.0001
EQ 1diff 0.0080 0.45894 5.45 0.0044
Table 5.5
Square
CDS 1diff 2.07182 9999.99 < 0.0001 12.13 0.0005
EQ 1diff 2.01630 1700.56 < 0.0001 32.63 < 0.0001
418
Appendix 37 – 1 WEEK
STATIONARITY

Autocorrelations
0 0.073985 1.00000 | |********************| 0
1 0.065260 0.88208 | .|****************** | 0.027267
2 0.055616 0.75172 | . |*************** | 0.043594
3 0.049283 0.66612 | . |************* | 0.052352
4 0.047160 0.63742 | . |************* | 0.058314
5 0.048133 0.65058 | . |************* | 0.063283
6 0.048105 0.65020 | . |************* | 0.068074
7 0.047308 0.63942 | . |************* | 0.072545
8 0.047246 0.63860 | . |************* | 0.076620
9 0.046595 0.62978 | . |************* | 0.080480
10 0.045301 0.61230 | . |************ | 0.084065
11 0.044116 0.59629 | . |************ | 0.087318
12 0.043785 0.59181 | . |************ | 0.090294
13 0.043181 0.58364 | . |************ | 0.093134
14 0.042467 0.57399 | . |*********** | 0.095814
15 0.041226 0.55722 | . |*********** | 0.098338
16 0.040508 0.54752 | . |*********** | 0.100658
17 0.040174 0.54300 | . |*********** | 0.102848
18 0.040247 0.54399 | . |*********** | 0.104958
19 0.039792 0.53784 | . |*********** | 0.107034
20 0.038928 0.52616 | . |*********** | 0.109025
419
Autocorrelations
21 0.038041 0.51418 | . |********** | 0.110897
22 0.037560 0.50767 | . |********** | 0.112655
23 0.036616 0.49491 | . |********** | 0.114343
24 0.035887 0.48506 | . |********** | 0.115925

Zero Mean 0 -54.2277 <.0001 -5.25 <.0001
1 -62.7774 <.0001 -5.58 <.0001
2 -43.7181 <.0001 -4.62 <.0001
Single Mean 0 -158.486 0.0001 -9.18 <.0001 42.12 0.0010
1 -201.011 0.0001 -10.03 <.0001 50.33 0.0010
2 -151.235 0.0001 -8.47 <.0001 35.86 0.0010
Trend 0 -235.331 0.0001 -11.32 <.0001 64.12 0.0010
1 -320.749 0.0001 -12.62 <.0001 79.65 0.0010
2 -258.276 0.0001 -10.80 <.0001 58.34 0.0010
420
AUTOCORRELATION


Test
AR(1) 1045.7741 <.0001
AR(2) 1049.9741 <.0001
AR(3) 1055.1575 <.0001
AR(4) 1065.2651 <.0001
421
MODEL
CO-INTEGRATION

integration.
0 0 0.1664 249.8462 29.38
1 1 0.0039 5.3764 15.34
2 2 0.0001 0.1229 3.84
VECM-MODEL
Variable 1
CDS -0.00842
EQUITY -0.05680
oneweek 4.62755

Variable 1
CDS 0.79743
EQUITY -0.00897
oneweek -0.03940
Table 3.4
Equation Parameter Estimate Std. Error t-value Pr > Variable
|t|
CDS Constant1 1.39677 0.15630 8.94 0.0001 1
AR1_1_1 -0.00671 0.00073 CDS (t-1)
AR1_1_2 -0.04529 0.00491 EQ (t-1)
AR1_1_3 3.69015 0.39969 Oneweek (t-1)
EQUITY Constant2 -0.01831 0.02445 -0.75 0.4541 1
AR1_2_1 0.00008 0.00011 CDS (t-1)
AR1_2_2 0.00051 0.00077 EQ (t-1)
AR1_2_3 -0.04150 0.06254 Oneweek (t-1)
Oneweek Constant3 -0.05933 0.00622 -9.53 0.0001 1
AR1_3_1 0.00033 0.00003 CDS (t-1)
AR1_3_2 0.00224 0.00020 EQ (t-1)
AR1_3_3 -0.18233 0.01592 Oneweek (t-1)
422
Table 3.5

1 4 241.02 <0.0001
2 2 234.83 <0.0001
3 2 9.72 0.0079
4 4 96.32 <0.0001
5 2 26.46 <0.0001
6 2 77.60 <0.0001
7 4 16.62 0.0023
8 2 0.89 0.6398
9 2 15.80 0.0004

Group 2 Variable: EQ oneweek
Group 2 Variable: oneweek
Test 4: Group 1 Variable: oneweek
Group 2 Variable: CDS EQ
Group 2 Variable: CDS oneweek
Group 2 Variable: oneweek
Table 3.6
CDS 0.0597 3.16527 28.33 < 0.0001
EQ 0.0003 0.49525 0.15 0.9320
oneweek 0.0890 0.12604 43.62 < 0.0001
423
Table 3.7
Square
CDS 1.10073 9999.99 < 0.0001 247.66 < 0.0001
EQ 2.21045 1770.06 < 0.0001 27.27 < 0.0001
oneweek 1.73654 1663.80 < 0.0001 67.67 < 0.0001
424
APPENDIX 38 - 1 MONTH
STATIONARITY

Autocorrelations
0 0.248190 1.00000 | |********************| 0
1 0.246165 0.99184 | .|********************| 0.027431
2 0.241324 0.97234 | . |******************* | 0.047253
3 0.234456 0.94466 | . |******************* | 0.060462
4 0.226020 0.91067 | . |****************** | 0.070701
5 0.216462 0.87216 | . |***************** | 0.079036
6 0.206170 0.83069 | . |***************** | 0.085973
7 0.195553 0.78792 | . |**************** | 0.091814
8 0.184913 0.74504 | . |*************** | 0.096768
9 0.174311 0.70233 | . |************** | 0.100992
10 0.163994 0.66076 | . |************* | 0.104603
11 0.154174 0.62119 | . |************ | 0.107698
12 0.144935 0.58397 | . |************ | 0.110361
13 0.136360 0.54942 | . |*********** | 0.112662
14 0.128561 0.51799 | . |********** | 0.114660
15 0.121655 0.49017 | . |********** | 0.116408
16 0.115705 0.46620 | . |********* | 0.117950
17 0.110614 0.44568 | . |********* | 0.119329
18 0.106324 0.42840 | . |********* | 0.120575
19 0.102802 0.41421 | . |******** | 0.121715
20 0.099928 0.40263 | . |******** | 0.122771
425
Autocorrelations
21 0.097486 0.39279 | . |******** | 0.123760
22 0.095326 0.38409 | . |******** | 0.124695
23 0.093391 0.37629 | . |******** | 0.125582
24 0.091692 0.36944 | . |******* | 0.126427

Zero Mean 0 -3.2199 0.2178 -1.21 0.2067
1 -21.1882 0.0011 -3.23 0.0013
2 -21.9638 0.0009 -3.28 0.0011
Single Mean 0 -10.8354 0.1103 -2.37 0.1510 2.82 0.3460
1 -65.5748 0.0019 -5.75 <.0001 16.51 0.0010
2 -70.1872 0.0019 -5.86 <.0001 17.18 0.0010
Trend 0 -14.5938 0.1987 -2.65 0.2572 3.56 0.4604
1 -94.6111 0.0008 -6.83 <.0001 23.34 0.0010
2 -103.912 0.0001 -7.02 <.0001 24.64 0.0010
426
Autocorrelations
0 0.0039264 1.00000 | |********************| 0
1 0.0028085 0.71530 | .|************** | 0.027451
2 0.0020284 0.51662 | . |********** | 0.039048
3 0.0015710 0.40012 | . |******** | 0.043898
4 0.0011231 0.28604 | . |****** | 0.046565
5 0.00073806 0.18798 | . |**** | 0.047871
6 0.00032246 0.08213 | . |** | 0.048424
7 0.00002264 0.00577 | .|. | 0.048529
8 -0.0000297 -.00756 | .|. | 0.048529
9 -0.0002787 -.07099 | .*| . | 0.048530
10 -0.0004949 -.12605 | ***| . | 0.048608
11 -0.0005798 -.14767 | ***| . | 0.048854
12 -0.0006571 -.16735 | ***| . | 0.049189
13 -0.0007769 -.19787 | ****| . | 0.049616
14 -0.0008958 -.22815 | *****| . | 0.050207
15 -0.0009608 -.24472 | *****| . | 0.050983
16 -0.0008681 -.22108 | ****| . | 0.051860
17 -0.0008105 -.20644 | ****| . | 0.052566
18 -0.0007724 -.19673 | ****| . | 0.053173
19 -0.0006569 -.16731 | ***| . | 0.053719
20 -0.0004399 -.11204 | **| . | 0.054110
21 -0.0002834 -.07219 | .*| . | 0.054285
22 -0.0002283 -.05816 | .*| . | 0.054357
23 -0.0002373 -.06044 | .*| . | 0.054404
427
Autocorrelations
24 -0.0001474 -.03755 | .*| . | 0.054454

Zero Mean 0 -377.020 0.0001 -14.81 <.0001
1 -369.872 0.0001 -13.58 <.0001
2 -325.816 0.0001 -12.03 <.0001
Single Mean 0 -377.033 0.0001 -14.81 <.0001 109.64 0.0010
1 -369.887 0.0001 -13.58 <.0001 92.19 0.0010
2 -325.831 0.0001 -12.02 <.0001 72.26 0.0010
Trend 0 -377.062 0.0001 -14.80 <.0001 109.57 0.0010
1 -369.926 0.0001 -13.57 <.0001 92.14 0.0010
2 -325.875 0.0001 -12.02 <.0001 72.22 0.0010
428
AUTOCORRELATION



Test
AR(1) 1306.4204 <.0001
AR(2) 1317.0495 <.0001
AR(3) 1317.0868 <.0001
AR(4) 1317.1560 <.0001
429


Test
AR(1) 679.3119 <.0001
AR(2) 679.3663 <.0001
AR(3) 681.3697 <.0001
AR(4) 682.6528 <.0001
430
MODEL
CO-INTEGRATION

integration.
0 0 0.0532 78.6827 29.38
1 1 0.0045 6.2634 15.34
2 2 0.0003 0.3458 3.84
VECM-MODEL

Variable 1
CDS -0.00688
EQUITY -0.03744
1month 2.55641

Variable 1
CDS 0.14858
EQUITY -0.01490
1month -0.00851
431
Table 3.4
CDS Constant1 0.17045 0.08254 2.07 0.0391 1
AR1_1_1 -0.00102 0.00051 CDS (t-1)
AR1_1_2 -0.00556 0.00275 EQ (t-1)
AR1_1_3 0.37983 0.18800 1month (t-1)
AR2_1_1 0.41672 0.02376 17.54 0.0001 D_CDS (t-1)
AR2_1_2 -1.97129 0.15326 -12.86 0.0001 D_EQ (t-1)
AR2_1_3 4.29509 1.26134 3.41 0.0007 D_1month (t-1)
EQ Constant2 -0.01475 0.01521 -0.97 0.3324 1
AR1_2_1 0.00010 0.00009 CDS (t-1)
AR1_2_2 0.00056 0.00051 EQ (t-1)
AR1_2_3 -0.03810 0.03465 1month (t-1)
AR2_2_1 0.01041 0.00438 2.38 0.0176 D_CDS (t-1)
AR2_2_2 -0.11503 0.02824 -4.07 0.0001 D_EQ (t-1)
AR2_2_3 -0.55690 0.23245 -2.40 0.0167 D_1month (t-1)
1MONTH Constant3 -0.00434 0.00132 -3.29 0.0010 1
AR1_3_1 0.00006 0.00001 CDS (t-1)
AR1_3_2 0.00032 0.00004 EQ (t-1)
AR1_3_3 -0.02176 0.00301 1month (t-1)
AR2_3_1 0.00110 0.00038 2.88 0.0040 D_CDS (t-1)
AR2_3_2 -0.00021 0.00245 -0.08 0.9334 D_EQ (t-1)
AR2_3_3 0.71244 0.02020 35.26 0.0001 D_1month (t-1)
432
Table 3.5

1 2 201.69 < 0.0001
2 1 200.39 < 0.0001
3 1 0.97 0.3255
4 2 196.85 < 0.0001
5 1 19.08 < 0.0001
6 1 184.42 < 0.0001
7 2 5.64 0.0595
8 1 2.52 0.1127
9 1 1.57 0.2107

Group 2 Variable: EQ 1month
Group 2 Variable: 1month
Test 4: Group 1 Variable: 1month
Group 2 Variable: CDS 1month
Table 3.6
CDS 0.3353 2.67798 110.89 < 0.0001
EQ 0.0176 0.49352 3.94 0.0007
1MONTH 0.5317 0.04290 249.55 < 0.0001
433
Table 3.7
Square
CDS 2.07066 9999.99 < 0.0001 152.66 < 0.0001
EQ 2.01491 1565.71 < 0.0001 25.41 < 0.0001
1MONTH 2.06359 3403.63 < 0.0001 99.25 < 0.0001
434
APPENDIX 39 - 2 MONTHS
STATIONARITY

Autocorrelations
0 0.531914 1.00000 | |********************| 0
1 0.530206 0.99679 | .|********************| 0.027639
2 0.526385 0.98961 | . |********************| 0.047771
3 0.520676 0.97887 | . |********************| 0.061468
4 0.513245 0.96490 | . |******************* | 0.072404
5 0.504260 0.94801 | . |******************* | 0.081638
6 0.493880 0.92850 | . |******************* | 0.089655
7 0.482282 0.90669 | . |****************** | 0.096722
8 0.469598 0.88285 | . |****************** | 0.103011
9 0.455922 0.85714 | . |***************** | 0.108637
10 0.441429 0.82989 | . |***************** | 0.113686
11 0.426273 0.80139 | . |**************** | 0.118224
12 0.410609 0.77195 | . |*************** | 0.122304
13 0.394536 0.74173 | . |*************** | 0.125971
14 0.378188 0.71099 | . |************** | 0.129264
15 0.361692 0.67998 | . |************** | 0.132218
16 0.345210 0.64900 | . |************* | 0.134863
17 0.328814 0.61817 | . |************ | 0.137228
18 0.312583 0.58766 | . |************ | 0.139339
19 0.296683 0.55777 | . |*********** | 0.141220
20 0.281183 0.52863 | . |*********** | 0.142893
435
Autocorrelations
21 0.266167 0.50040 | . |********** | 0.144379
22 0.251703 0.47320 | . |********* | 0.145698
23 0.237847 0.44715 | . |********* | 0.146867
24 0.224671 0.42238 | . |******** | 0.147904

Zero Mean 0 0.1569 0.7201 0.11 0.7171
1 -13.2107 0.0114 -2.47 0.0131
2 -17.6842 0.0033 -2.88 0.0041
Single Mean 0 -2.4425 0.7252 -1.00 0.7560 0.88 0.8457
1 -39.8871 0.0019 -4.44 0.0003 9.89 0.0010
2 -53.8009 0.0019 -5.11 <.0001 13.06 0.0010
Trend 0 -4.4264 0.8601 -1.48 0.8367 1.16 0.9446
1 -60.3445 0.0008 -5.48 <.0001 15.04 0.0010
2 -82.7019 0.0008 -6.32 <.0001 19.96 0.0010
436
Autocorrelations
0 0.0024325 1.00000 | |********************| 0
1 0.0020871 0.85800 | .|***************** | 0.027661
2 0.0018729 0.76996 | . |*************** | 0.043493
3 0.0017436 0.71682 | . |************** | 0.052904
4 0.0015745 0.64729 | . |************* | 0.059875
5 0.0014286 0.58729 | . |************ | 0.065009
6 0.0012555 0.51614 | . |********** | 0.068949
7 0.0011081 0.45556 | . |********* | 0.071845
8 0.0010119 0.41600 | . |******** | 0.074022
9 0.00085322 0.35076 | . |******* | 0.075789
10 0.00067936 0.27929 | . |****** | 0.077021
11 0.00056458 0.23210 | . |***** | 0.077792
12 0.00043621 0.17933 | . |**** | 0.078321
13 0.00028333 0.11648 | . |**. | 0.078634
14 0.00014139 0.05813 | . |* . | 0.078766
15 -5.014E-6 -.00206 | . | . | 0.078799
16 -0.0000882 -.03626 | . *| . | 0.078799
17 -0.0002111 -.08680 | .**| . | 0.078812
18 -0.0003610 -.14839 | ***| . | 0.078885
19 -0.0004167 -.17130 | ***| . | 0.079098
20 -0.0004953 -.20363 | ****| . | 0.079381
21 -0.0005766 -.23705 | *****| . | 0.079780
22 -0.0006252 -.25704 | *****| . | 0.080317
23 -0.0006986 -.28719 | ******| . | 0.080944
437
Autocorrelations
24 -0.0007177 -.29504 | ******| . | 0.081720

Zero Mean 0 -185.098 0.0001 -9.97 <.0001
1 -143.204 0.0001 -8.45 <.0001
2 -111.338 0.0001 -7.30 <.0001
Single Mean 0 -185.201 0.0001 -9.97 <.0001 49.72 0.0010
1 -143.293 0.0001 -8.45 <.0001 35.72 0.0010
2 -111.410 0.0001 -7.30 <.0001 26.62 0.0010
Trend 0 -185.216 0.0001 -9.97 <.0001 49.68 0.0010
1 -143.306 0.0001 -8.45 <.0001 35.69 0.0010
2 -111.422 0.0001 -7.29 <.0001 26.60 0.0010
438
AUTOCORRELATION



Test
AR(1) 1301.3596 <.0001
AR(2) 1305.3418 <.0001
AR(3) 1305.5098 <.0001
AR(4) 1305.5713 <.0001
439



Test
AR(1) 962.3832 <.0001
AR(2) 967.9526 <.0001
AR(3) 972.7554 <.0001
AR(4) 973.3088 <.0001
440
MODEL
CO-INTEGRATION

integration.
0 0 0.0488 72.2666 29.38
1 1 0.0046 6.9768 15.34
2 2 0.0007 0.9060 3.84
VECM-MODEL

Variable 1
CDS -0.00880
EQUITY -0.074243
2month 1.82569

Variable 1
CDS 0.26071
EQUITY -0.00043
2month -0.00434
441
Table 3.4
CDS Constant1 0.33034 0.10015 3.30 0.0010 1
AR1_1_1 -0.00229 0.00064 CDS (t-1)
AR1_1_2 -0.01106 0.00311 EQ (t-1)
AR1_1_3 0.47598 0.13371 2month (t-1)
AR2_1_1 0.37331 0.02770 13.48 0.0001 D_CDS (t-1)
AR2_1_2 -1.90363 0.16753 -11.36 0.0001 D_EQ (t-1)
AR2_1_3 15.32882 3.27589 4.68 0.0001 D_2month (t-1)
AR3_1_1 0.04779 0.02590 1.85 0.0652 D_CDS (t-2)
AR3_1_2 -0.93876 0.16272 -5.77 0.0001 D_EQ (t-2)
AR3_1_3 -17.59361 3.25707 -5.40 0.0001 D_2month (t-2)
EQ Constant2 -0.00709 0.01879 -0.38 0.7061 1
AR1_2_1 0.00000 0.0012 CDS (t-1)
AR1_2_2 0.00002 0.00058 EQ (t-1)
AR1_2_3 -0.00079 0.02509 2month (t-1)
AR2_2_1 0.00462 0.00520 0.89 0.3740 D_CDS (t-1)
AR2_2_2 -0.10399 0.03144 -3.31 0.0010 D_EQ (t-1)
AR2_2_3 0.05315 0.61479 0.09 0.9311 D_2month (t-1)
AR3_2_1 -0.00310 0.00486 -0.64 0.5241 D_CDS (t-2)
AR3_2_2 -0.07950 0.03054 -2.60 0.0093 D_EQ (t-2)
AR3_2_3 -0.37619 0.61126 -0.62 0.5384 D_2month (t-2)
2MONTH Constant3 -0.00386 0.00093 -4.13 0.0001 1
AR1_3_1 0.00004 0.00001 CDS (t-1)
AR1_3_2 0.00018 0.00003 EQ (t-1)
AR1_3_3 -0.00792 0.00125 2month (t-1)
AR2_3_1 -0.00041 0.00026 -1.57 0.1164 D_CDS (t-1)
AR2_3_2 0.00016 0.00156 0.10 0.9188 D_EQ (t-1)
AR2_3_3 0.73492 0.03055 24.05 0.0001 D_2month (t-1)
AR3_3_1 0.00041 0.00024 1.71 0.0874 D_CDS (t-2)
AR3_3_2 0.00213 0.00152 1.40 0.1609 D_EQ (t-2)
AR3_3_3 0.15759 0.03038 5.19 0.0001 D_2month (t-2)
442
Table 3.5

1 2 199.02 < 0.0001
2 1 197.64 < 0.0001
3 1 2.07 0.1499
4 2 336.15 < 0.0001
5 1 1.80 0.1795
6 1 336.19 < 0.0001
7 2 3.01 0.2225
8 1 2.47 0.1164
9 1 0.23 0.6347

Table 3.6
CDS 0.3602 2.64581 81.01 < 0.0001
EQ 0.0186 0.49654 2.73 0.0037
2MONTH 0.7501 0.02468 431.80 < 0.0001
443
Table 3.7
Square
CDS 1.99729 9999.99 < 0.0001 127.90 < 0.0001
EQ 1.99330 1354.08 < 0.0001 25.94 < 0.0001
2MONTH 2.03388 7517.35 < 0.0001 53.45 < 0.0001
444
STATIONARITY

Autocorrelations
0 0.866057 1.00000 | |********************| 0
1 0.864648 0.99837 | .|********************| 0.027886
2 0.861369 0.99459 | . |********************| 0.048247
3 0.856332 0.98877 | . |********************| 0.062179
4 0.849632 0.98103 | . |********************| 0.073394
5 0.841376 0.97150 | . |******************* | 0.082967
6 0.831665 0.96029 | . |******************* | 0.091385
7 0.820606 0.94752 | . |******************* | 0.098921
8 0.808302 0.93331 | . |******************* | 0.105743
9 0.794822 0.91775 | . |****************** | 0.111966
10 0.780271 0.90095 | . |****************** | 0.117670
11 0.764758 0.88303 | . |****************** | 0.122917
12 0.748368 0.86411 | . |***************** | 0.127755
13 0.731195 0.84428 | . |***************** | 0.132222
14 0.713334 0.82366 | . |**************** | 0.136349
15 0.694902 0.80238 | . |**************** | 0.140165
16 0.676015 0.78057 | . |**************** | 0.143692
17 0.656728 0.75830 | . |*************** | 0.146952
18 0.637165 0.73571 | . |*************** | 0.149964
19 0.617416 0.71290 | . |************** | 0.152745
20 0.597548 0.68996 | . |************** | 0.155311
445
Autocorrelations
21 0.577637 0.66697 | . |************* | 0.157676
22 0.557780 0.64405 | . |************* | 0.159855
23 0.538048 0.62126 | . |************ | 0.161860
24 0.518525 0.59872 | . |************ | 0.163704

Zero Mean 0 0.1349 0.7148 0.13 0.7234
1 -12.1163 0.0155 -2.37 0.0174
2 -15.4430 0.0062 -2.68 0.0073
Single Mean 0 -1.6238 0.8222 -0.93 0.7784 0.81 0.8642
1 -35.8057 0.0019 -4.23 0.0007 8.98 0.0010
2 -45.7997 0.0019 -4.74 0.0001 11.23 0.0010
Trend 0 -2.3087 0.9618 -1.06 0.9339 0.57 0.9900
1 -56.4852 0.0008 -5.30 <.0001 14.06 0.0010
2 -74.0417 0.0008 -5.98 <.0001 17.91 0.0010
446
Autocorrelations
0 0.0020455 1.00000 | |********************| 0
1 0.0018770 0.91763 | .|****************** | 0.027907
2 0.0017567 0.85881 | . |***************** | 0.045721
3 0.0016762 0.81947 | . |**************** | 0.056914
4 0.0015634 0.76431 | . |*************** | 0.065462
5 0.0014608 0.71416 | . |************** | 0.072077
6 0.0013556 0.66271 | . |************* | 0.077392
7 0.0012430 0.60770 | . |************ | 0.081692
8 0.0011779 0.57584 | . |************ | 0.085140
9 0.0010670 0.52162 | . |********** | 0.088121
10 0.00095714 0.46793 | . |********* | 0.090494
11 0.00088224 0.43131 | . |********* | 0.092359
12 0.00078754 0.38501 | . |******** | 0.093915
13 0.00068004 0.33246 | . |******* | 0.095136
14 0.00056573 0.27658 | . |****** | 0.096037
15 0.00044485 0.21748 | . |**** | 0.096655
16 0.00037237 0.18204 | . |**** | 0.097036
17 0.00025546 0.12489 | . |** . | 0.097301
18 0.00014942 0.07305 | . |* . | 0.097426
19 0.00008416 0.04114 | . |* . | 0.097469
20 0.00001169 0.00572 | . | . | 0.097482
21 -0.0000750 -.03665 | . *| . | 0.097482
22 -0.0001373 -.06712 | . *| . | 0.097493
23 -0.0002121 -.10368 | . **| . | 0.097529
447
Autocorrelations
24 -0.0002657 -.12988 | .***| . | 0.097615

Zero Mean 0 -105.604 0.0001 -7.42 <.0001
1 -85.2933 <.0001 -6.53 <.0001
2 -67.4533 <.0001 -5.73 <.0001
Single Mean 0 -105.666 0.0001 -7.42 <.0001 27.51 0.0010
1 -85.3431 0.0019 -6.52 <.0001 21.28 0.0010
2 -67.4916 0.0019 -5.73 <.0001 16.39 0.0010
Trend 0 -105.670 0.0001 -7.41 <.0001 27.49 0.0010
1 -85.3459 0.0008 -6.52 <.0001 21.27 0.0010
2 -67.4930 0.0008 -5.72 <.0001 16.38 0.0010
448
AUTOCORRELATION



Test
AR(1) 1281.2887 <.0001
AR(2) 1283.3909 <.0001
AR(3) 1283.5555 <.0001
AR(4) 1283.6081 <.0001
449



Test
AR(1) 1081.1943 <.0001
AR(2) 1083.4717 <.0001
AR(3) 1086.0351 <.0001
AR(4) 1087.5049 <.0001
450
MODEL
CO-INTEGRATION

integration.
0 0 0.0430 64.9481 29.38
1 1 0.0060 8.5714 15.34
2 2 0.0007 0.8921 3.84
VECM-MODEL

Variable 1
CDS -0.00971
EQUITY -0.04623
3month 1.53781

Variable 1
CDS 0.26629
EQUITY 0.01035
3month -0.00289
451
Table 3.4
CDS Constant1 0.37985 0.11094 3.42 0.0006 1
AR1_1_1 -0.00258 0.00073 CDS (t-1)
AR1_1_2 -0.01231 0.00345 EQ (t-1)
AR1_1_3 0.40951 0.11491 3month (t-1)
AR2_1_1 0.35995 0.02823 12.75 0.0001 D_CDS (t-1)
AR2_1_2 -1.99046 0.16876 -11.79 0.0001 D_EQ (t-1)
AR2_1_3 18.04658 4.69941 3.84 0.0001 D_3month (t-1)
AR3_1_1 0.03230 0.02647 1.22 0.2225 D_CDS (t-2)
AR3_1_2 -0.85932 0.16370 -5.25 0.0001 D_EQ (t-2)
AR3_1_3 -13.89495 4.68056 -2.97 0.0030 D_3month (t-2)
EQ Constant2 0.00441 0.02069 0.21 0.8311 1
AR1_2_1 -0.00010 0.00014 CDS (t-1)
AR1_2_2 -0.00048 0.00064 EQ (t-1)
AR1_2_3 0.01591 0.02143 3month (t-1)
AR2_2_1 0.00491 0.00526 0.93 0.3510 D_CDS (t-1)
AR2_2_2 -0.11257 0.03147 -3.58 0.0004 D_EQ (t-1)
AR2_2_3 -0.36582 0.87632 -0.42 0.6764 D_3month (t-1)
AR3_2_1 -0.00282 0.00494 -0.57 0.5683 D_CDS (t-2)
AR3_2_2 -0.07956 0.03052 -2.61 0.0093 D_EQ (t-2)
AR3_2_3 -0.10603 0.87280 -0.12 0.9033 D_3month (t-2)
3MONTH Constant3 -0.00307 0.00073 -4.21 0.0001 1
AR1_3_1 0.00003 0.00000 CDS (t-1)
AR1_3_2 0.00013 0.00002 EQ (t-1)
AR1_3_3 -0.00444 0.00076 3month (t-1)
AR2_3_1 -0.00012 0.00019 -0.66 0.5078 D_CDS (t-1)
AR2_3_2 0.00084 0.00111 0.75 0.4516 D_EQ (t-1)
AR2_3_3 0.81322 0.03093 26.29 0.0001 D_3month (t-1)
AR3_3_1 0.00022 0.00017 1.28 0.1998 D_CDS (t-2)
AR3_3_2 0.00151 0.00108 1.40 0.1613 D_EQ (t-2)
AR3_3_3 0.12297 0.03081 3.99 0.0001 D_3month (t-2)
452
Table 3.5

1 4 247.44 < 0.0001
2 2 225.74 < 0.0001
3 2 11.47 0.0032
4 4 325.92 < 0.0001
5 2 22.23 < 0.0001
6 2 319.83 < 0.0001
7 4 2.98 0.5620
8 2 0.83 0.6610
9 2 2.23 0.3284

Table 3.6
CDS 0.3570 2.67545 78.48 < 0.0001
EQ 0.0200 0.49890 2.88 0.0022
3MONTH 0.8486 0.01761 792.17 < 0.0001
453
Table 3.7
Square
CDS 1.98988 9999.99 < 0.0001 133.68 < 0.0001
EQ 1.99172 1290.59 < 0.0001 24.42 < 0.0001
3MONTH 2.02718 9999.99 < 0.0001 32.08 < 0.0001
454
STATIONARITY

Autocorrelations
0 1.809238 1.00000 | |********************| 0
1 1.808140 0.99939 | .|********************| 0.028583
2 1.806124 0.99828 | . |********************| 0.049487
3 1.803229 0.99668 | . |********************| 0.063854
4 1.799478 0.99461 | . |********************| 0.075502
5 1.794901 0.99208 | . |********************| 0.085539
6 1.789527 0.98911 | . |********************| 0.094473
7 1.783385 0.98571 | . |********************| 0.102585
8 1.776506 0.98191 | . |********************| 0.110051
9 1.768903 0.97771 | . |********************| 0.116990
10 1.760606 0.97312 | . |******************* | 0.123485
11 1.751643 0.96817 | . |******************* | 0.129599
12 1.742040 0.96286 | . |******************* | 0.135379
13 1.731828 0.95721 | . |******************* | 0.140863
14 1.721031 0.95125 | . |******************* | 0.146081
15 1.709678 0.94497 | . |******************* | 0.151057
16 1.697804 0.93841 | . |******************* | 0.155812
17 1.685424 0.93157 | . |******************* | 0.160363
455
Autocorrelations
18 1.672558 0.92445 | . |****************** | 0.164724
19 1.659233 0.91709 | . |****************** | 0.168910
20 1.645455 0.90947 | . |****************** | 0.172930
21 1.631236 0.90161 | . |****************** | 0.176795
22 1.616594 0.89352 | . |****************** | 0.180512
23 1.601539 0.88520 | . |****************** | 0.184090
24 1.586089 0.87666 | . |****************** | 0.187536

Zero Mean 0 0.2270 0.7374 0.47 0.8162
1 -4.4604 0.1469 -1.45 0.1385
2 -5.4299 0.1092 -1.60 0.1029
Single Mean 0 -0.7300 0.9097 -0.91 0.7866 1.21 0.7601
1 -13.4288 0.0586 -2.64 0.0850 3.51 0.1697
2 -16.1257 0.0300 -2.88 0.0489 4.15 0.0770
Trend 0 0.4114 0.9978 0.37 0.9989 1.54 0.8700
1 -23.5391 0.0330 -3.29 0.0681 5.49 0.0917
2 -29.1902 0.0095 -3.65 0.0262 6.73 0.0369
456
Autocorrelations
0 0.00095885 1.00000 | |********************| 0
1 0.00091191 0.95105 | .|******************* | 0.028595
2 0.00087550 0.91307 | . |****************** | 0.047925
3 0.00085488 0.89157 | . |****************** | 0.060499
4 0.00082369 0.85904 | . |***************** | 0.070428
5 0.00079483 0.82894 | . |***************** | 0.078529
6 0.00076420 0.79700 | . |**************** | 0.085385
7 0.00073467 0.76620 | . |*************** | 0.091265
8 0.00071753 0.74833 | . |*************** | 0.096381
9 0.00068889 0.71845 | . |************** | 0.101021
10 0.00066239 0.69082 | . |************** | 0.105115
11 0.00063779 0.66516 | . |************* | 0.108764
12 0.00060749 0.63357 | . |************* | 0.112041
13 0.00057828 0.60310 | . |************ | 0.114933
14 0.00054929 0.57287 | . |*********** | 0.117492
15 0.00052040 0.54274 | . |*********** | 0.119754
16 0.00050676 0.52851 | . |*********** | 0.121749
17 0.00048477 0.50557 | . |********** | 0.123611
18 0.00045809 0.47775 | . |********** | 0.125290
19 0.00044196 0.46093 | . |********* | 0.126771
20 0.00042725 0.44559 | . |********* | 0.128134
21 0.00040718 0.42465 | . |******** | 0.129395
22 0.00039216 0.40899 | . |******** | 0.130529
23 0.00037329 0.38931 | . |******** | 0.131573
457
Autocorrelations
24 0.00035523 0.37047 | . |******* | 0.132512

Zero Mean 0 -59.5204 <.0001 -5.52 <.0001
1 -49.7353 <.0001 -4.98 <.0001
2 -35.2386 <.0001 -4.16 <.0001
Single Mean 0 -59.5872 0.0019 -5.52 <.0001 15.21 0.0010
1 -49.7905 0.0019 -4.98 <.0001 12.39 0.0010
2 -35.2753 0.0019 -4.16 0.0009 8.64 0.0010
Trend 0 -59.7806 0.0008 -5.53 <.0001 15.27 0.0010
1 -49.9615 0.0008 -4.99 0.0002 12.44 0.0010
2 -35.4115 0.0023 -4.17 0.0052 8.68 0.0010
458
AUTOCORRELATION



Test
AR(1) 1222.5264 <.0001
AR(2) 1222.7872 <.0001
AR(3) 1222.8792 <.0001
AR(4) 1222.9264 <.0001
459



Test
AR(1) 1106.4120 <.0001
AR(2) 1107.3362 <.0001
AR(3) 1110.5645 <.0001
AR(4) 1111.4819 <.0001
460
MODEL
CO-INTEGRATION

integration.
0 0 0.0285 44.3796 29.38
1 1 0.0063 9.0300 15.34
2 2 0.0011 1.3209 3.84
VECM-MODEL

Variable 1
CDS -0.01552
EQUITY -0.05548
6month 1.50251

Variable 1
CDS 0.30572
EQUITY -0.01209
6month -0.00093
461
Table 3.4
CDS Constant1 0.50212 0.13037 3.85 0.0001 1
AR1_1_1 -0.00475 0.00120 CDS (t-1)
AR1_1_2 -0.01696 0.00429 EQ (t-1)
AR1_1_3 0.45935 0.11620 6month (t-1)
AR2_1_1 0.36206 0.02859 12.67 0.0001 D_CDS (t-1)
AR2_1_2 -1.78069 0.17471 -10.19 0.0001 D_EQ (t-1)
AR2_1_3 57.51969 9.19858 6.25 0.0001 D_6month (t-1)
AR3_1_1 0.03667 0.02670 1.37 0.1698 D_CDS (t-2)
AR3_1_2 -0.82033 0.16546 -4.96 0.0001 D_EQ (t-2)
AR3_1_3 -50.23325 9.21508 -5.45 0.0001 D_6month (t-2)
EQ Constant2 -0.02338 0.02450 -0.95 0.3402 1
AR1_2_1 0.00019 0.00023 CDS (t-1)
AR1_2_2 0.00067 0.00081 EQ (t-1)
AR1_2_3 -0.01817 0.02184 6month (t-1)
AR2_2_1 0.00544 0.00537 1.01 0.3118 D_CDS (t-1)
AR2_2_2 -0.10231 0.03283 -3.12 0.0019 D_EQ (t-1)
AR2_2_3 0.93143 1.72867 0.54 0.5901 D_6month (t-1)
AR3_2_1 -0.00252 0.00502 -0.50 0.6156 D_CDS (t-2)
AR3_2_2 -0.07439 0.03110 -2.39 0.0169 D_EQ (t-2)
AR3_2_3 -1.34563 1.73178 -0.78 0.4373 D_6month (t-2)
6MONTH Constant3 -0.00121 0.00046 -2.65 0.0081 1
AR1_3_1 0.00001 0.00000 CDS (t-1)
AR1_3_2 0.00005 0.00001 EQ (t-1)
AR1_3_3 -0.00140 0.00041 6month (t-1)
AR2_3_1 -0.00014 0.00010 -1.38 0.1687 D_CDS (t-1)
AR2_3_2 -0.00043 0.00061 -0.70 0.4812 D_EQ (t-1)
AR2_3_3 0.85175 0.03212 26.52 0.0001 D_6month (t-1)
AR3_3_1 0.00010 0.00009 1.08 0.2824 D_CDS (t-2)
AR3_3_2 0.00138 0.00058 2.38 0.0175 D_EQ (t-2)
AR3_3_3 0.11381 0.03218 3.54 0.0004 D_6month (t-2)
462
Table 3.5

1 2 198.14 < 0.0001
2 1 188.65 < 0.0001
3 1 5.21 0.0225
4 2 339.69 < 0.0001
5 1 3.00 0.0830
6 1 339.97 < 0.0001
7 2 3.56 0.1684
8 1 2.44 0.1181
9 1 0.37 0.5415

Table 3.6
CDS 0.3742 2.70228 80.47 < 0.0001
EQ 0.0204 0.50784 2.80 0.0029
6MONTH 0.9073 0.00944 1316.82 < 0.0001
463
Table 3.7
Square
CDS 2.00244 9435.96 < 0.0001 135.85 < 0.0001
EQ 1.99488 1116.15 < 0.0001 25.01 < 0.0001
6MONTH 2.02677 9999.99 < 0.0001 37.76 < 0.0001
464
APPENDIX 41 - 1 YEAR
STATIONARITY

Autocorrelations
0 3.003629 1.00000 | |********************| 0
1 2.990176 0.99552 | .|********************| 0.030220
2 2.976239 0.99088 | . |********************| 0.052186
3 2.961828 0.98608 | . |********************| 0.067207
4 2.946960 0.98113 | . |********************| 0.079327
5 2.931660 0.97604 | . |********************| 0.089727
6 2.915940 0.97081 | . |******************* | 0.098949
7 2.899814 0.96544 | . |******************* | 0.107296
8 2.883286 0.95993 | . |******************* | 0.114955
9 2.866357 0.95430 | . |******************* | 0.122057
10 2.849069 0.94854 | . |******************* | 0.128690
11 2.831413 0.94266 | . |******************* | 0.134924
12 2.813426 0.93668 | . |******************* | 0.140810
13 2.795129 0.93058 | . |******************* | 0.146390
14 2.776537 0.92439 | . |****************** | 0.151696
15 2.757634 0.91810 | . |****************** | 0.156756
16 2.738450 0.91171 | . |****************** | 0.161592
17 2.718991 0.90524 | . |****************** | 0.166224
18 2.699250 0.89866 | . |****************** | 0.170666
19 2.679233 0.89200 | . |****************** | 0.174934
465
Autocorrelations
20 2.658953 0.88525 | . |****************** | 0.179040
21 2.638433 0.87842 | . |****************** | 0.182994
22 2.617697 0.87151 | . |***************** | 0.186805
23 2.596785 0.86455 | . |***************** | 0.190482
24 2.575691 0.85753 | . |***************** | 0.194032

Zero Mean 0 2.9531 0.9986 16.22 0.9999
1 1.2223 0.9428 0.74 0.8738
2 0.7859 0.8737 0.42 0.8027
Single Mean 0 4.2514 0.9999 12.71 0.9999 144.59 0.0010
1 -1.0131 0.8850 -0.33 0.9179 0.68 0.8986
2 -2.4907 0.7193 -0.70 0.8456 0.71 0.8888
Trend 0 2.9332 0.9999 5.84 0.9999 87.76 0.0010
1 -7.1350 0.6528 -1.72 0.7445 2.22 0.7328
2 -9.8734 0.4450 -2.05 0.5718 2.65 0.6452

466
Autocorrelations
0 0.00034929 1.00000 | |********************| 0
1 0.00033634 0.96294 | .|******************* | 0.030234
2 0.00032609 0.93358 | . |******************* | 0.051081
3 0.00031938 0.91439 | . |****************** | 0.064828
4 0.00031036 0.88854 | . |****************** | 0.075704
5 0.00030262 0.86640 | . |***************** | 0.084702
6 0.00029485 0.84414 | . |***************** | 0.092449
7 0.00028803 0.82461 | . |**************** | 0.099244
8 0.00028326 0.81095 | . |**************** | 0.105321
9 0.00027522 0.78793 | . |**************** | 0.110882
10 0.00026814 0.76767 | . |*************** | 0.115887
11 0.00026211 0.75041 | . |*************** | 0.120446
12 0.00025384 0.72674 | . |*************** | 0.124646
13 0.00024573 0.70352 | . |************** | 0.128461
14 0.00023803 0.68148 | . |************** | 0.131936
15 0.00023164 0.66317 | . |************* | 0.135115
16 0.00022731 0.65079 | . |************* | 0.138058
17 0.00022216 0.63604 | . |************* | 0.140834
18 0.00021631 0.61927 | . |************ | 0.143436
19 0.00021234 0.60793 | . |************ | 0.145859
20 0.00020815 0.59594 | . |************ | 0.148157
21 0.00020154 0.57701 | . |************ | 0.150333
22 0.00019739 0.56513 | . |*********** | 0.152344
23 0.00019195 0.54954 | . |*********** | 0.154248
24 0.00018550 0.53108 | . |*********** | 0.156027
467
Zero Mean 0 -34.7698 <.0001 -4.16 <.0001
1 -28.6835 <.0001 -3.73 0.0002
2 -21.3073 0.0011 -3.19 0.0015
Single Mean 0 -37.7618 0.0019 -4.30 0.0006 9.26 0.0010
1 -31.1459 0.0019 -3.85 0.0027 7.43 0.0010
2 -23.0134 0.0057 -3.26 0.0174 5.36 0.0256
Trend 0 -41.6029 0.0008 -4.46 0.0018 9.98 0.0010
1 -34.2762 0.0030 -3.97 0.0099 7.95 0.0080
2 -25.1600 0.0232 -3.34 0.0612 5.64 0.0835
468
AUTOCORRELATION



Test
AR(1) 1094.3297 <.0001
AR(2) 1094.3461 <.0001
AR(3) 1094.3571 <.0001
AR(4) 1094.3649 <.0001
469


Test
AR(1) 1017.0594 <.0001
AR(2) 1017.7053 <.0001
AR(3) 1019.2109 <.0001
AR(4) 1019.6531 <.0001
470
MODEL
CO-INTEGRATION

integration.
0 0 0.0137 28.1125 29.38
1 1 0.0096 13.0483 15.34
2 2 0.0023 2.5450 3.84
VAR-MODEL
Table 3.2
AR1_1_1 0.42536 0.02568 16.56 0.0001 CDS (t-1)
AR1_1_2 -2.22591 0.16738 -13.30 0.0001 EQ (t-1)
AR1_1_3 -13.84346 4.93399 -2.81 0.0051 1year (t-1)
EQ 1 diff Constant2 0.01259 0.01693 0.74 0.4570 1
AR1_2_1 0.00667 0.00465 1.43 0.1517 CDS (t-1)
AR1_2_2 -0.10801 0.03030 -3.56 0.0004 EQ (t-1)
AR1_2_3 -0.13485 0.89319 -0.15 0.8800 1year (t-1)
1year 1 diff Constant3 0.00009 0.00013 0.71 0.4759 1
AR1_3_1 -0.00001 0.00004 -0.34 0.7302 CDS (t-1)
AR1_3_2 0.00518 0.00023 22.12 0.0001 EQ (t-1)
AR1_3_3 0.97052 0.00690 140.63 0.0001 1year (t-1)
471
Table 3.3

1 2 180.57 < 0.0001
2 1 171.62 < 0.0001
3 1 3.21 0.0731
4 2 497.87 < 0.0001
5 1 5.81 0.0160
6 1 498.15 < 0.0001
7 2 2.35 0.3094
8 1 2.33 0.1273
9 1 0.29 0.5912

Group 2 Variable: EQ 1 diff oneyear
Group 2 Variable: oneyear
Test 4: Group 1 Variable: oneyear
Group 2 Variable: CDS 1 diff EQ 1 diff
Group 2 Variable: CDS 1 diff oneyear
Group 2 Variable: oneyear
Table 3.4
CDS 1diff 0.3370 2.94173 184.54 < 0.0001
EQ 1diff 0.0147 0.533253 5.43 0.0010
1YEAR 1diff 0.9517 0.00411 7160.01 < 0.0001
472
Table 3.5
Square
CDS 1diff 2.11745 6545.11 < 0.0001 199.03 < 0.0001
EQ 1diff 2.01135 955.87 < 0.0001 17.20 < 0.0001
1YEAR 1diff 2.09761 3482.87 < 0.0001 6.88 0.0089
473
Appendix 43 – OVERVIEW OF RESULTS
Rank 1st lag 2nd lag 3rd lag R-square
4.1 Index, After - Q4 -6.93038 31.81
3.5 High yield - Q4 -7.446 14.93

3.7 High yield -6.38 27.35
3.4 High yield - Q3 -6.985 15.47
3.4 Index - Q4 -5.35306 -1.82639 28.74
2.7 Financial -4.542 -1.741 20.2
2.8 consumer, cyk -3.36513 -1.27632 33.9
2.6 Index, after - Q3 -2.90776 33.41
2.6 Index - exogenous -2.39199 -0.9392 36.74
2.6 Index, After -2.12302 38.23
2.3 Investment grade - Q4 -2.912 -0.886 25.09
2.4 Index -2.25953 -0.83542 34.17
2.4 Index -Q3 -2.39542 -0.84414 31.79
2.0 High yield - Q2 -2.598 22.01
1.9 High yield - Q1 -2.52 -1.48 20.49
1.9 Investment grade -1.263 -0.497 31.63
1.4 Industrial -0.713 -0.466 25.26
1.4 Materials -0.856 -0.393 22.91
1.3 Index -Q2 -0.77904 -0.5991 22.68
0.9 communication -2.03795 3.3
1.4 Energy -0.598 -0.41 -0.296 24.99
1.3 Index, Before - Q3 -0.862 -0.492 20.92
1.3 Index, After - Q2 -0.66628 23.61
1.3 Index, After -Q1 -0.49543 -0.30462 25.36
1.1 Index, Before - Q4 -1.308 -0.929 12.18
1.2 Index, Before -0.544 -0.413 22.37
1.2 Index -Q1 -0.40939 -0.26813 24.04
1.2 Investment grade -Q1 -0.341 -0.22 24.48
1.0 consumer, non-cyk -0.62065 -0.34168 17.38
0.8 Technology -1.12926 8.14
0.9 Index, Before - Q2 -0.292 -0.305 16.62
0.7 Utility -0.818 7.94
0.8 Index, Before -Q1 -0.117 -0.185 16.96
474
Appendix 44 – QUARTILE RANKING
Index
3.2 Index - Q4 -5.35306 -1.82639 28.74

2.0 Index -Q3 -2.39542 -0.84414 31.79
2.0 Index -2.25953 -0.83542 34.17
1.0 Index -Q2 -0.77904 -0.5991 22.68
0.9 Index -Q1 -0.40939 -0.26813 24.04
Before
2.9 Index, Before - Q4 -1.308 -0.929 12.18

2.5 Index, Before - Q3 -0.862 -0.492 20.92
2.0 Index, Before -0.544 -0.413 22.37
1.3 Index, Before - Q2 -0.292 -0.305 16.62
1.0 Index, Before -Q1 -0.117 -0.185 16.96
After
4.1 Index, After - Q4 -6.93038 31.81

2.2 Index, after - Q3 -2.90776 33.41
2.0 Index, After -2.12302 38.23
0.9 Index, After - Q2 -0.66628 23.61
0.9 Index, After -Q1 -0.49543 -0.30462 25.36
High yield
2.0 High yield -6.38 27.35

1.7 High yield - Q4 -7.446 14.93
1.7 High yield - Q3 -6.985 15.47
1.2 High yield - Q2 -2.598 22.01
1.1 High yield - Q1 -2.52 -1.48 20.49
Investment grade

2.0 Investment grade -1.263 -0.497 31.63
1.0 Investment grade -Q1 -0.341 -0.22 24.48
475

EQY-CDS Relationship

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EQY-CDS Relationship

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MSC IN ECONOMICS & BUSINESS ADMINISTRATION

APPLIED ECONOMICS AND FINANCE

The relationship between

Handed in: 31. August 2009

Charlotte Renneberg J. Nielsen

COPENHAGEN BUSINESS SCHOOL 2009

Rasmus Hansen (BankInvest) for continuously inspiration and technical support.

Kirsten Nielsen for editorial support.

Table 0: S&P 500 sector distribution

Table 1: Index – descriptive statistics

Table 2: Index - correlation

Table 3: Index - Granger Causality test

Table 4: Index – VAR CDS

Table 5: Index - VAR EQ

Table 6: Exogenous – Granger Causality test

Table 7: Exogenous – VAR EQ

Table 8: Exogenous – VAR CDS

Table 9: Quartile - descriptive statistics

Table 10: Quartile – correlation

Table 11: Quartile – Granger Causality test

Table 12: Quartile – VAR CDS

Table 13: Quartile – VAR EQ

Table 14: Time periods – descriptive statistic mean

Table 15: Time periods – descriptive statistic st.d.

Table 16: Time periods – correlation

Table 17: Before – Granger Causality test

Table 18: Before – VAR CDS

Table 19: Before – VAR EQ

Table 20: After – Granger Causality test

Table 21: After – VAR CDS

Table 22: After – VAR EQ

Table 23: Time period quartiles – descriptive statistic

Table 24: Time period quartiles – correlation

Table 26: Before quartiles – VAR CDS

Table 27: Before quartiles – VAR EQ

Table 28: After quartiles – Granger Causality test

Table 29: After quartiles – VAR CDS

Table 30: After quartiles – VAR EQ

Table 31: Rating scale and definition

Table 32: Rating – descriptive statistics

Table 33: Rating – correlation

Table 34: Rating – Granger Causality test

Table 35: Rating – VAR CDS

Table 36: Rating – VAR EQ

Table 37: Rating quartile – descriptive statistic CDS

Table 38: Rating quartile – descriptive statistic EQ

Table 39: Rating quartile – correlation

Table 40: High yield quartiles – Granger Causality test

Table 41: High yield quartiles – VAR CDS

Table 42: High yield quartiles – VAR EQ

Table 43: Investment grade quartiles – Granger Causality test

Table 44: Investment grade quartiles – VAR CDS

Table 45: Investment grade quartiles – VAR EQ

Table 46: Sector – descriptive statistics CDS

Table 47: Sector – ranking mean/st.d. CDS

Table 48: Sector – descriptive statistics EQ

Table 49: Sector – ranking mean/st.d. EQ

Table 50: Sector – financial leverage

Table 51: Sector – comparison of correlation, leverage and mean

Table 53: Sector – VAR CDS

Table 54: Sector – VAR EQ

Table 55: Overview of results

Table 56: Comparison of models

1 ! "

+$ $ , -. ,(

Yt is a random walk: ∆? 1? & @

Yt is a random walk with drift: ∆? A & 1? & @