Determinants of credit default swap spread changes: The sell-side perspective

Byungmin Oh, Haerang Park and Denis Yongmin Joe

Finance Research Letters, 2024, vol. 61, issue C

Abstract: This study revisits the credit spread puzzle using credit default swap spread changes between 2002 and 2020. We find that credit-related structural variables account for only 13.8% of the variation in credit default swap spread changes. There exists a single dominant common component that explains 49.8% of the regression residuals. Sell-side risk-bearing constraints are closely related to the unknown common component and significantly improve the explanatory power of credit default swap spread changes, particularly the commonality between them.

Keywords: Credit default swaps; Credit risk; Comovement; Sell-side constraints (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:61:y:2024:i:c:s1544612323008462

DOI: 10.1016/j.frl.2023.104474

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