The Spillover Effects of Default Risk between Holding Companies and Their Subsidiaries (Case Study: Iran Khodro Investment Development Co.)

Document Type : Original Article

Authors

1 Assistant Prof, Department of Finance and Banking, Allameh Tabataba'i University, Tehran, Iran.

2 PhD.Candidate in Financial Management, Allameh Tabataba'i University, Tehran, Iran.

Abstract

Study of spillover effects of default risk plays a very significant role in financial institutions, their relation & interaction with each other and in portfolio selection, risk management and the credit rating of such institutions as well.This research aims to study the spillover effects of default risk between holding Companies and their subsidiaries active in Iran’s capital market. For such a purpose, in the first phase, default probability was calculated for Iran Khodro Investment Development Co. and its three subsidiaries by Black-Scholes-Merton (BSM) option pricing model, then default probability spillover for the period of 2011-2018 was measured on daily basis by multivariate GARCH model (BEKK model).As concluded, there is a spillover effect of default risk from the holding companies to their subsidiaries and vice versa. 

Keywords

References

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