Credit default swap spreads
Market conditions, firm performance, and the impact of the 2007–2009 financial crisis
Bibliographic Data
| ID | 21542091 |
|---|---|
| Authors | Xiaoqing Fu (0000-0002-3694-122X, University of Macau), Matthew C Li (Royal Holloway University of London, corresponding author), Philip Molyneux (0000-0001-6210-7418, University of Sharjah) |
| Year | 2021 |
| Volume | 60 |
| Issue | 5 |
| Pages | 2203-2225 |
| Publication date | 2021-05-01 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Empirical Economics (JOURNAL) |
| Journal identifiers | ISSN: 0377-7332 • E-ISSN: 1435-8921 |
| Publisher | Springer Science and Business Media LLC (PUBLISHER) |
| DOI | 10.1007/s00181-020-01852-0 |
| OpenAlex | W3012501277 |
| Language | EN |
| References cited | 46 |
We employ a multi-factor analysis from both a firm-specific (microeconomic) and market-specific (macroeconomic) perspective to examine the determinants of credit default swap (CDS) spreads in the USA, the UK and Japan between 2005 and 2012. We investigate both aggregate (cross-country) and individual market data so that a comparative analysis can be performed. Our results reveal that (i) in general, Tobin’s Q, stock market returns, and the risk-free interest rate possess significant explanatory power for CDS spreads; (ii) the relationship identified is found to exist in all three markets with varying strength; (iii) despite the added information flow, the 2007–2009 financial crisis did not shorten the persistence (adjustment speed) of CDS spreads to variations in our explanatory variables; and (iv) degree of firm leverage appears to have a significant influence on CDS spreads. These results are robust to various model specifications. Synthesizing our overall results, we maintain that to reap the benefits of using CDSs as a risk management tool, greater attention should be devoted to supporting a stable market (economic and financial) environment. This paper contributes to elucidate how firm performance and macroeconomic conditions play a significant role in explaining CDS spreads
Business · Credit default swap · Credit risk · Credit valuation adjustment · Econometrics · Economics · Explanatory power · Financial crisis · Financial economics · iTraxx · Macroeconomics · Monetary economics · Stock market · Banking stability, regulation, efficiency · Credit Risk and Financial Regulations · Financial Distress and Bankruptcy Prediction · Finance
| Highly cited | No |
|---|