Slow- and fast-moving information content of CDS spreads: new endogenous systematic factors

Ming-Tsung Lin, Olga Kolokolova and Ser-Huang Poon

The European Journal of Finance, 2021, vol. 27, issue 1-2, 136-157

Abstract: This paper proposes two new Credit Default Swap (CDS) endogenous systematic factors constructed from peer-CDS information. The factors capture slow-moving credit risk information, as well as fast-moving newly arrived market information embedded in the most recent CDS quotes. Using a sample of U.S. non-financial listed firms from 2002 to 2011, we find that these two endogenous systematic factors dominate firm-specific factors and other widely known systematic factors in in-sample and out-of-sample CDS spread predictions.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:27:y:2021:i:1-2:p:136-157

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DOI: 10.1080/1351847X.2019.1667846

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