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Journal of economics and business
We examine market linkage and information spillover across the U.S. stock, corporate bond, and credit derivatives markets in the pre-crisis, crisis, and recovery periods. Our results suggest that information spills over across markets in a timely manner. We find that the market linkage becomes stronger in the crisis period, which could be explained by the increasing volatility and deteriorating funding liquidity. In particular, volatility plays a dominant role in the information transmission, which absorbs the liquidity effect when both volatility and liquidity are included as exogenous factors in a vector autoregressive model.