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Determinants of credit default swap spread changes: The sell-side perspective

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  • Oh, Byungmin
  • Park, Haerang
  • Joe, Denis Yongmin

Abstract

This study revisits the credit spread puzzle using credit default swap spread changes between 2002 and 2020. We find that credit-related structural variables account for only 13.8% of the variation in credit default swap spread changes. There exists a single dominant common component that explains 49.8% of the regression residuals. Sell-side risk-bearing constraints are closely related to the unknown common component and significantly improve the explanatory power of credit default swap spread changes, particularly the commonality between them.

Suggested Citation

  • Oh, Byungmin & Park, Haerang & Joe, Denis Yongmin, 2024. "Determinants of credit default swap spread changes: The sell-side perspective," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612323008462
    DOI: 10.1016/j.frl.2023.104474
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