The determinants of CDS spreads

Koresh Galil (), Offer Moshe Shapir, Dan Amiram and Uri Ben-Zion

Journal of Banking & Finance, 2014, vol. 41, issue C, 271-282

Abstract: This study proposes models that can be used as shorthand analysis tools for CDS spreads and CDS spread changes. For this purpose, we examine the determinants of CDS spreads and spread changes on a broad database of 718 US firms during the period from early 2002 to early 2013. Contrary to previous studies, we find that market variables have explanatory power after controlling for firm-specific variables inspired by structural models. Three explanatory variables appear to outperform the other variables examined in this paper: Stock Return, the change in stock return volatility, and the change in the median CDS spread in the rating class. We also find that models used in the event study literature to explain spread changes can be improved by adding market variables. Furthermore, we show that ratings explain cross-sectional variation in CDS spreads even after controlling for structural model variables.

Keywords: Credit Default Swap; CDS; Credit spread; Corporate bond; Structural model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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Related works:
Working Paper: THE DETERMINANTS OF CDS SPREADS (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:41:y:2014:i:c:p:271-282

DOI: 10.1016/j.jbankfin.2013.12.005

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