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The Informational Content of CDS Spreads

In: Credit Default Swaps

Author

Listed:
  • Christopher L. Culp

    (Johns Hopkins University)

  • Andria van der Merwe

    (Johns Hopkins University)

  • Bettina J. Stärkle

    (Compass Lexecon)

Abstract

We review the empirical academic literature on the informational content of credit default swap (“CDS”) spreads. Most of this literature posits and empirically documents that CDS spreads generally: (i) contain valuable information about the probability and severity of adverse credit events that the underlying reference entities may experience during the life of the CDS; (ii) reflect a risk premium that protection sellers demand to compensate them for reference entity-specific and systematic risks (both credit-related and non-credit-related); and (iii) are anticipatory and contain information regarding future announcements about the credit risk and financial condition of the underlying reference entity.

Suggested Citation

  • Christopher L. Culp & Andria van der Merwe & Bettina J. Stärkle, 2018. "The Informational Content of CDS Spreads," Palgrave Studies in Risk and Insurance, in: Credit Default Swaps, chapter 0, pages 157-192, Palgrave Macmillan.
    • Handle: RePEc:pal:psircp:978-3-319-93076-3_9
    DOI: 10.1007/978-3-319-93076-3_9
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    Cited by:

    1. Katz, Yuri A. & Biem, Alain, 2021. "Time-resolved topological data analysis of market instabilities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 571(C).

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