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Article: Researchers from University of California detail findings in finance.
- Article from:
- Investment Weekly News
- Article date:
- November 7, 2009
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According to recent research from the United States, "Standard credit risk models cannot explain the observed clustering of default, sometimes described as ''credit contagion.'' This paper provides the first empirical analysis of credit contagion via direct counterparty effects. We find that bankruptcy announcements cause negative abnormal equity returns and increases in CDS spreads for creditors."
"In addition, creditors with large exposures are more likely to suffer from financial distress later. This suggests that counterparty risk is a potential additional channel of credit contagion," wrote P. Jorion and colleagues, University of California.
The ...