The Credit Default Swap Market's Determinants

Fordham University Department of Economics Discussion Paper No. 2008-05

29 Pages Posted: 13 Mar 2008  

Caitlin Ann Greatrex

Fordham University - Department of Economics

Date Written: March 2008

Abstract

This paper explores the ability of variables suggested by structural models to explain variation in CDS spread changes. Using monthly changes in CDS spreads for 333 firms from January, 2001 - March, 2006, I find that these variables are able to explain thirty percent of the variation in CDS spread changes. A rating-based CDS index that accounts for both credit risk and overall market conditions is the single best predictor of CDS spread changes. Leverage and volatility, however, are also key determinants, as these two variables can explain almost half of the explained variation in monthly CDS spread changes.

Keywords: Credit default swap, credit risk, leverage, stock returns, equity volatility.

JEL Classification: G12

Suggested Citation

Greatrex, Caitlin Ann, The Credit Default Swap Market's Determinants (March 2008). Fordham University Department of Economics Discussion Paper No. 2008-05. Available at SSRN: https://ssrn.com/abstract=1104887 or http://dx.doi.org/10.2139/ssrn.1104887

Caitlin Ann Greatrex (Contact Author)

Fordham University - Department of Economics ( email )

441 E Fordham Rd
Dealy Hall
Bronx, NY 10458
United States

HOME PAGE: http://www.fordham.edu/economics

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