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Macroeconomic uncertainty and credit default swap spreads

  • Christopher Baum
  • Chi Wan

This article empirically investigates the impact of macroeconomic uncertainty on the spreads of individual firms' Credit Default Swaps (CDSs). While the existing literature acknowledges the importance of the levels of macroeconomic factors in determining CDS spreads, we find that the second moments of these factors-macroeconomic uncertainty-have significant explanatory power over and above that of traditional macroeconomic factors such as the risk-free rate and the Treasury term spread.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603101003781455
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 20 (2010)
Issue (Month): 15 ()
Pages: 1163-1171

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Handle: RePEc:taf:apfiec:v:20:y:2010:i:15:p:1163-1171
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  16. Houweling, Patrick & Vorst, Ton, 2005. "Pricing default swaps: Empirical evidence," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1200-1225, December.
  17. Norden, Lars & Weber, Martin, 2004. "Informational Efficiency of Credit Default Swap and Stock Markets: The Impact of Credit Rating Announcements," CEPR Discussion Papers 4250, C.E.P.R. Discussion Papers.
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