Common Determinants of Credit Default Swap Premia in the North American Oil and Gas Industry. A Panel BMA Approach

Karol Szafranek, Marek Kwas, Grzegorz Szafrański and Zuzanna Wośko
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Marek Kwas: Collegium of Economic Analysis, SGH Warsaw School of Economics, 02-554 Warszawa, Poland
Zuzanna Wośko: Collegium of Economic Analysis, SGH Warsaw School of Economics, 02-554 Warszawa, Poland

Energies, 2020, vol. 13, issue 23, 1-23

Abstract: This study discovered market determinants of credit default swap (CDS) spreads in the North American oil and gas industry. Due to the limited theoretical background on market sources of CDS price fluctuations, we chose to alleviate model uncertainty and possible misspecification issues using Bayesian model averaging. This robust framework allowed us to aggregate results from a vast number of linear panel models estimated over the 2017–2020 period. We identified oil price volatility, major shifts in the OPEC+ supply policy, natural gas prices and industrial metal prices as the most robust determinants of CDS spreads. We show that following the onset of the COVID-19 pandemic, oil prices ceased to be a notably important determinant of credit risk, as factors indirectly related to oil prices, such as global and sectoral uncertainty, financial conditions and the macroeconomic stance became more influential. Additionally, we show that the CDS spreads of shale companies are determined by similar common factors, but they are more sensitive to the OPEC+ decisions on the global supply and are less affected by the domestic activity. Finally, we also prove that our modelling approach may help investors and risk officers to identify robust determinants behind the dynamics of credit risk.

Keywords: credit risk; credit default swaps; Bayesian model averaging; robust determinants; COVID-19; oil and gas sector (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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