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The Determinants of CDS Spreads in Multiple Industry Sectors: A Comparison between the US and Europe

Jatin Malhotra () and Angelo Corelli ()
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Jatin Malhotra: Center of Excellence for Research in Finance and Accounting (CERFA), American University in Dubai, Dubai 28282, UAE
Angelo Corelli: Center of Excellence for Research in Finance and Accounting (CERFA), American University in Dubai, Dubai 28282, UAE

Risks, 2018, vol. 6, issue 3, 1-16

Abstract: The paper analyzes the relationship between the credit default swaps (CDS) spreads for 5-year CDS in Europe and US, and fundamental macroeconomic variables such as regional stock indices, oil prices, gold prices, and interest rates. The dataset includes consideration of multiple industry sectors in both economies, and it is split in two sections, before and after the global financial crisis. The analysis is carried out using multivariate regression of each index vs. the macroeconomic variables, and a Granger causality test. Both approaches are performed on the change of value of the variables involved. Results show that equity markets lead in price discovery, bidirectional causality between interest rate, and CDS spreads for most sectors involved. There is also bidirectional causality between stock and oil returns to CDS spreads.

Keywords: CDS spread; macroeconomic driver; correlation; causality; price discovery (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2018
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