Corporate credit default swap systematic factors

Ka Kei Chan, Ming‐Tsung Lin and Qinye Lu

Journal of Futures Markets, 2024, vol. 44, issue 7, 1224-1256

Abstract: We examine a comprehensive set of systematic and firm‐specific determinants of the credit default swap (CDS), using a two‐step approach to explore the factor's effect on CDS spread changes. We show that systematic factors are important and account for the most changes in the CDS spreads (with average R 2 ${R}^{2}$ of 35%), while firm‐specific factors are limited (with R 2 ${R}^{2}$ of 5% in panel regression) with only 4 out of 28 firm‐specific factors being significant. It implies that the systematic factors are overlooked in the literature, and they can provide many implications for practitioners in CDS pricing and the firm's credit risk management.

Date: 2024
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