The Informational Content of CDS Spreads

Christopher L. Culp (), Andria van der Merwe () and Bettina J. Stärkle ()
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Christopher L. Culp: Johns Hopkins University
Andria van der Merwe: Johns Hopkins University
Bettina J. Stärkle: Compass Lexecon

Chapter Chapter 9 in Credit Default Swaps, 2018, pp 157-192 from Palgrave Macmillan

Abstract: Abstract We review the empirical academic literature on the informational content of credit default swap (“CDS”) spreads. Most of this literature posits and empirically documents that CDS spreads generally: (i) contain valuable information about the probability and severity of adverse credit events that the underlying reference entities may experience during the life of the CDS; (ii) reflect a risk premium that protection sellers demand to compensate them for reference entity-specific and systematic risks (both credit-related and non-credit-related); and (iii) are anticipatory and contain information regarding future announcements about the credit risk and financial condition of the underlying reference entity.

Keywords: Credit default swap; CDS; Informational content of CDS spreads; Probability of default; Loss-given-default; Risk premium; Event study; Expectations hypothesis; Adverse credit event (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psircp:978-3-319-93076-3_9

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DOI: 10.1007/978-3-319-93076-3_9

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