The Determinants of CDS Spreads

30 Pages Posted: 1 Dec 2013 Last revised: 30 Nov 2017

See all articles by Koresh Galil

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics

Offer Shapir

New York University (NYU) - New York University (NYU), Shanghai

Dan Amiram

Tel Aviv University - Coller School of Management

Uri Benzion

Western Galilee College - Department of Economics

Date Written: January 15, 2014

Abstract

This study proposes models that can be used as shorthand analysis tools for CDS spreads and CDS spread changes. For this purpose, we examine the determinants of CDS spreads and spread changes on a broad database of 718 US firms during the period from early 2002 to early 2013. Contrary to previous studies, we discover that market variables have explanatory power after controlling for firm-specific variables inspired by structural models. Three explanatory variables appear to outperform the other variables examined in this paper: stock Return, ∆Volatility (the change in stock return volatility), and ∆MRI (change in the median CDS spread in the rating class). We also discover that models used in the event study literature to explain spread changes can be improved by using additional variables. Furthermore, we show that ratings explain cross-sectional variation in CDS spreads even after controlling for structural model variables.

Keywords: Credit default swap, CDS, credit spread, corporate bond, structural model

JEL Classification: G12, G13

Suggested Citation

Galil, Koresh and Shapir, Offer and Amiram, Dan and Benzion, Uri, The Determinants of CDS Spreads (January 15, 2014). Journal of Banking and Finance, Vol. 41, 2014; Columbia Business School Research Paper No. 13-84. Available at SSRN: https://ssrn.com/abstract=2361872 or http://dx.doi.org/10.2139/ssrn.2361872

Koresh Galil

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972-8-6472310 (Phone)

Offer Shapir (Contact Author)

New York University (NYU) - New York University (NYU), Shanghai ( email )

1555 Century Ave
Shanghai, Shanghai 200122
China

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Uri Benzion

Western Galilee College - Department of Economics ( email )

POB 2125
Akko, 24121
Israel

Register to save articles to
your library

Register

Paper statistics

Downloads
591
rank
43,731
Abstract Views
2,847
PlumX Metrics