The Direct Relevance of Accounting Information for Credit Default Swap Pricing

27 Pages Posted: 14 Dec 2011

See all articles by George E. Batta

George E. Batta

Claremont McKenna College - Robert Day School of Economics and Finance

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Date Written: November/December 2011

Abstract

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

Suggested Citation

Batta, George E., The Direct Relevance of Accounting Information for Credit Default Swap Pricing (November/December 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 9‐10, pp. 1096-1122, 2011, Available at SSRN: https://ssrn.com/abstract=1972101 or http://dx.doi.org/10.1111/j.1468-5957.2011.02264.x

George E. Batta (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

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