Macroeconomic Conditions and Credit Default Swap Spread Changes

This study investigates the importance of the business cycle in explaining credit default swap spread changes by utilizing ex ante proxies. It uses portfolio regression and finds the structural variables, including the business cycle, explain approximately 65% of the spread differences. Furthermore, the business cycle variable enhances explanatory power more during the pre- and post-crisis periods than during the crisis period and shows greater improvement for investment-grade than for non-investment-grade firms. These results suggest that macroeconomic conditions play a critical role when the underlying asset value is likely to have greater distance from the default barrier. (c) 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:766-802, 2017
Publisher
WILEY-BLACKWELL
Issue Date
2017-08
Language
English
Keywords

CDS SPREADS; DETERMINANTS; LIQUIDITY

Citation

JOURNAL OF FUTURES MARKETS, v.37, no.8, pp.766 - 802

ISSN
0270-7314
DOI
10.1002/fut.21836
URI
http://hdl.handle.net/10203/225134
Appears in Collection
MT-Journal Papers(저널논문)
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