Corporate Credit Default Swap Systematic Factors

49 Pages Posted: 21 Dec 2020

See all articles by Ka Kei Chan

Ka Kei Chan

Brunel University London

Ming-Tsung Lin

University of Essex

Qinye Lu

De Montfort University

Date Written: October 22, 2020

Abstract

This study examines the statistical significance of systematic and firm-specific determinants of Credit Default Swap (CDS) price variations. We cast doubt on the firm-specific determinants showed in prior research to be statistical significance to CDS price variations. In this paper, two research questions are studied: (1) ``Which and to what extent systematic factors can explain the individual CDS price variations?'' and (2) ``Which and to what extent the firm-specific factors can predict CDS spread variations that are not explained by systematic factors?''. We find that systematic factors account for the majority changes of the CDS spreads (R2 = 35%). Merely 4 of 28 firm-specific factors are statistically significant predictors for CDS changes that are not explained by the systematic factors and they have little explanatory power (R2 = 8%). We document that individual CDS variations can be more related to the systematic factors than to firm-specific factors.

Keywords: Credit Default Swap (CDS), CDS Systematic Factors

JEL Classification: G12

Suggested Citation

Chan, Ka Kei and Lin, Ming-Tsung and Lu, Qinye, Corporate Credit Default Swap Systematic Factors (October 22, 2020). Available at SSRN: https://ssrn.com/abstract=3716969 or http://dx.doi.org/10.2139/ssrn.3716969

Ka Kei Chan

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Ming-Tsung Lin (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://https://www.essex.ac.uk/people/linmi48001/ming-tsung-lin

Qinye Lu

De Montfort University ( email )

The Gateway
Leicester, LE1 9BH
United Kingdom

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