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Determinants of Credit Default Swaps in International Markets

Author

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  • M. Kabir Hassan
  • Thiti S. Ngow
  • Jung Suk-Yu

Abstract

This paper reexamines the determinants of credit default swaps (CDS) spreads in the U.S., Europe, and Asia-Pacific markets with a new data set using linear regressions. These determinants are categorized into two groups: firm level and macroeconomic variables. We also include two non-traditional moment risk variables in the analysis as we suspect that these measures may capture the effects of possible extreme downside risk, or extreme negative scenarios, in the underlying credit valuation process. Our findings from the U.S. and abroad confirm the existing evidence on the significant relationship between theoretical determinants of default risk and actual market pricing of CDS. Also, we provide additional evidence on the importance of the interaction between macroeconomic and firm-specific variables, which is common throughout the world.

Suggested Citation

  • M. Kabir Hassan & Thiti S. Ngow & Jung Suk-Yu, 2011. "Determinants of Credit Default Swaps in International Markets," NFI Working Papers 2011-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2011-wp-01
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    References listed on IDEAS

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    11. Benjamin Yibin Zhang & Hao Zhou & Haibin Zhu, 2009. "Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms," The Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5099-5131, December.
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    Cited by:

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    2. Sorin Gabriel Anton, 2011. "The Local Determinants Of Emerging Market Sovereign Cds Spreads In The Context Of The Debt Crisis. An Explanatory Study "," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 58, pages 41-52, november.

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    More about this item

    Keywords

    Credit default swaps; credit risk; credit default swaps spreads; market conditions;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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