Determinants of Credit Default Swaps in International Markets
Networks Financial Institute Working Paper No. 2011-WP-01
30 Pages Posted: 1 Mar 2011
Date Written: February 1, 2011
This paper reexamines the determinants of credit default swaps (CDS) spreads in the U.S., Europe, and Asia-Pacific markets with a new data set using linear regressions. These determinants are categorized into two groups: firm level and macroeconomic variables. We also include two non-traditional moment risk variables in the analysis as we suspect that these measures may capture the effects of possible extreme downside risk, or extreme negative scenarios, in the underlying credit valuation process. Our findings from the U.S. and abroad confirm the existing evidence on the significant relationship between theoretical determinants of default risk and actual market pricing of CDS. Also, we provide additional evidence on the importance of the interaction between macroeconomic and firm-specific variables, which is common throughout the world.
Keywords: Credit default swaps, credit risk, credit default swaps spreads, market conditions
JEL Classification: C13, E43, G15
Suggested Citation: Suggested Citation