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The Determinants of CDS Spreads in Multiple Industry Sectors: A Comparison between the US and Europe

Author

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  • Jatin Malhotra

    (Center of Excellence for Research in Finance and Accounting (CERFA), American University in Dubai, Dubai 28282, UAE)

  • Angelo Corelli

    (Center of Excellence for Research in Finance and Accounting (CERFA), American University in Dubai, Dubai 28282, UAE)

Abstract

The paper analyzes the relationship between the credit default swaps (CDS) spreads for 5-year CDS in Europe and US, and fundamental macroeconomic variables such as regional stock indices, oil prices, gold prices, and interest rates. The dataset includes consideration of multiple industry sectors in both economies, and it is split in two sections, before and after the global financial crisis. The analysis is carried out using multivariate regression of each index vs. the macroeconomic variables, and a Granger causality test. Both approaches are performed on the change of value of the variables involved. Results show that equity markets lead in price discovery, bidirectional causality between interest rate, and CDS spreads for most sectors involved. There is also bidirectional causality between stock and oil returns to CDS spreads.

Suggested Citation

  • Jatin Malhotra & Angelo Corelli, 2018. "The Determinants of CDS Spreads in Multiple Industry Sectors: A Comparison between the US and Europe," Risks, MDPI, vol. 6(3), pages 1-16, August.
    • Handle: RePEc:gam:jrisks:v:6:y:2018:i:3:p:89-:d:166779
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    References listed on IDEAS

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    Cited by:

    1. Asia Aman, 2019. "Are CDS Spreads Sensitive to the Term Structure of the Yield Curve? A Sector-Wise Analysis under Various Market Conditions," JRFM, MDPI, vol. 12(4), pages 1-13, September.
    2. Huthaifa Sameeh Alqaralleh, 2024. "From volatility to stability: understanding the role of macroeconomic factors in sovereign CDS spreads," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(3), pages 665-707, September.
    3. Taurai Muvunza & Yong Jiang, 2023. "Determinants and hedging effectiveness of China's sovereign credit default swaps," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2074-2087, April.
    4. Karol Szafranek & Marek Kwas & Grzegorz Szafrański & Zuzanna Wośko, 2020. "Common Determinants of Credit Default Swap Premia in the North American Oil and Gas Industry. A Panel BMA Approach," Energies, MDPI, vol. 13(23), pages 1-23, November.

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