THE DETERMINANTS OF CDS SPREADS

Koresh Galil (), Offer Shapir (), Dan Amiram () and Uri Ben-Zion
Additional contact information
Offer Shapir: BGU
Dan Amiram: Columbia Business School
Uri Ben-Zion: Western Galilee College

No 1318, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: This study proposes models that can be used as shorthand analysis tools for CDS spreads and CDS spread changes. For this purpose we examine the determinants of CDS spreads and spread changes on a broad database of 718 US firms during the period from early 2002 to early 2013. Contrary to previous studies, we discover that market variables still have explanatory power after controlling for firm-specific variables inspired by structural models. Three explanatory variables appear to overshadow the other variables examined in this paper: Stock Return, ?Volatility (the change in stock return volatility) and ?MRI (change in the median CDS spread in the rating class). We also discover that models used in the event study literature to explain spread changes can be improved by using additional market variables. Further, we show that ratings explain cross-section variation in CDS spreads even after controlling for structural model variables.

Keywords: Credit Default Swap; CDS; Credit spread; Corporate bond; Structural model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013
New Economics Papers: this item is included in nep-fmk and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The determinants of CDS spreads (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:1318

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