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The Determinants Of Cds Spreads

Author

Listed:
  • Koresh Galil

    (BGU)

  • Offer Moshe Shapir

    (BGU)

  • Dan Amiram

    (Columbia Business School)

  • Uri Ben-Zion

    (Western Galilee College)

Abstract

This study proposes models that can be used as shorthand analysis tools for CDS spreads and CDS spread changes. For this purpose we examine the determinants of CDS spreads and spread changes on a broad database of 718 US firms during the period from early 2002 to early 2013. Contrary to previous studies, we discover that market variables still have explanatory power after controlling for firm-specific variables inspired by structural models. Three explanatory variables appear to overshadow the other variables examined in this paper: Stock Return, ?Volatility (the change in stock return volatility) and ?MRI (change in the median CDS spread in the rating class). We also discover that models used in the event study literature to explain spread changes can be improved by using additional market variables. Further, we show that ratings explain cross-section variation in CDS spreads even after controlling for structural model variables.

Suggested Citation

  • Koresh Galil & Offer Moshe Shapir & Dan Amiram & Uri Ben-Zion, 2013. "The Determinants Of Cds Spreads," Working Papers 1318, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:1318
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit Default Swap; CDS; Credit spread; Corporate bond; Structural model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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