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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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  1. Christopher F. Baum & Atreya Chakraborty & Boyan Liu, 2010. "The impact of macroeconomic uncertainty on firms' changes in financial leverage," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 22-30.
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  6. Benjamin Yibin Zhang & Hao Zhou & Haibin Zhu, 2005. "Explaining credit default swap spreads with the equity volatility and jump risks of individual firms," Finance and Economics Discussion Series 2005-63, Board of Governors of the Federal Reserve System (U.S.).
  7. Rajgopal, Shivaram & Shevlin, Terry, 2002. "Empirical evidence on the relation between stock option compensation and risk taking," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 145-171, June.
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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.
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