The Direct Relevance of Accounting Information for Credit Default Swap Pricing
Journal of Business Finance and Accounting, Vol. 38, Nos. 9-10, 2011
Posted: 24 Sep 2011
Date Written: September 23, 2011
This paper examines the direct relevance of accounting information for credit default swap (CDS) pricing. Prior research on the impact of accounting information for CDS pricing has neglected to include either the output of theoretical CDS pricing models or credit ratings, both of which should impound credit relevant accounting information. Both in- and out-of-sample testing results suggest that accounting information’s explanatory power for CDS prices is significantly diminished when this additional information is included in regression models. Empirical findings suggest a larger indirect role for accounting information in pricing CDS’, which play an important role in credit risk price discovery.
Keywords: credit default swaps, credit risk, capital markets, value relevance
JEL Classification: M40, G12
Suggested Citation: Suggested Citation