RT Journal Article
SR Electronic
T1 Dynamic Spillover of Money Market Turmoil from FX Swap to Cross-Currency Swap Markets: <em>Evidence from the 2007–2008 Turmoil</em>
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 24
OP 38
DO 10.3905/JFI.2009.18.4.024
VO 18
IS 4
A1 Naohiko Baba
YR 2009
UL https://pm-research.com/content/18/4/24.abstract
AB This paper investigates the dynamic spillover of 2007–08 money market turmoil from short-term FX swap to the longer-term cross-currency swap markets. Under the turmoil, the short-term covered parity (CIP) deviation (FX swap deviation) and long-term CIP deviation (cross-currency swap price) are significantly in a one-on-one cointegrating relationship. The Granger test shows a significant causality from the short-term to long-term deviation. The bivariate GARCH model reveals a significant volatility spillover in the same direction and a substantial shift-up in conditional correlation. The principal component analysis shows that these deviations are driven largely by the factors that characterize the money market turmoil.TOPICS: Interest-rate and currency swaps, financial crises and financial market history, statistical methods, volatility measures