The impact of CDX spreads on individual credit default swap contracts

Zagdbazar Davaadorj

International Journal of Financial Markets and Derivatives, 2024, vol. 10, issue 1, 35-46

Abstract: The study empirically tests whether CAPM can effectively explain the spread of CDSs by evaluating systematic risk within this market and examines the impact of the credit default swap index (CDX) on the pricing of individual CDS contracts across different sectors. The findings reveal the significant role of the CDX in signalling the overall health of the credit market and influencing individual CDS spreads, emphasising its importance for hedging purposes rather than for speculation. This study not only fills a critical gap by extending CAPM's testing to the CDS market but also provides nuanced insights into the dynamics of credit risk management, which are crucial for investors and policymakers engaged in the financial markets. These findings underscore the need for a deeper understanding of market-wide indicators and their impact on pricing and risk assessment in the evolving landscape of financial derivatives.

Keywords: credit default swap index; CDX; credit default swap; CDS; capital asset pricing model; CAPM. (search for similar items in EconPapers)
Date: 2024
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