 Accounting-based versus market-based cross-sectional models of CDS spreadsSanjiv Das (), Paul Hanouna and Atulya Sarin () Journal of Banking & Finance, 2009, vol. 33, issue 4, 719-730 Abstract: Models of financial distress rely primarily on accounting-based information (e.g. [Altman, E., 1968. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance 23, 589-609; Ohlson, J., 1980. Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research 19, 109-131]) or market-based information (e.g. [Merton, R.C., 1974. On the pricing of corporate debt: The risk structure of interest rates. Journal of Finance 29, 449-470]). In this paper, we provide evidence on the relative performance of these two classes of models. Using a sample of 2860 quarterly CDS spreads we find that a model of distress using accounting metrics performs comparably to market-based structural models of default. Moreover, a model using both sources of information performs better than either of the two models. Overall, our results suggest that both sources of information (accounting- and market-based) are complementary in pricing distress. Keywords: Credit; default; swap; Credit; risk; Bankruptcy; prediction (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:33:y:2009:i:4:p:719-730 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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