Corporate CDS spreads from the Eurozone crisis to COVID-19 pandemic: A Bayesian Markov switching model

Giacomo Bulfone, Roberto Casarin and Francesco Ravazzolo
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Giacomo Bulfone: University Ca' Foscari of Venice, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper investigates the determinants of the European iTraxx corporate CDS index considering a large set of explanatory variables within a Markov switching model framework. It applies a large set of financial and economic variables and compares linear, two, three and four-regimes models in a sample post-subprime financial crisis up to the COVID-19 pandemic. Results indicate that more than two regimes are significant to model CDS spreads, and the four-regime model is the preferred one. The fourth regime activated during the COVID-19 pandemic and also in high volatility periods. The impact of the covariates changes across regimes.

Keywords: Corporate CDS index; Markov switching; Bayesian econometrics (search for similar items in EconPapers)
JEL-codes: C11 C24 G12 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-fmk and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:21-09

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