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Investor Sentiment and Credit Default Swap Spreads During the Global Financial Crisis

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  • Jeehye Lee
  • Sol Kim
  • Yuen Jung Park

Abstract

This paper examines whether investor sentiment can predict credit default swap (CDS) spread changes. Among several proxies for investor sentiment, change in equity put–call ratio performs best in predicting variation in CDS spread changes in both firm‐ and portfolio‐level regressions; in particular, the explanatory power of this proxy is greater for non‐investment‐grade firms than for investment‐grade firms. More importantly, sentiment may be a critical factor in determining CDS spread changes during the global financial crisis and may best explain the differences in CDS spread in the group of firms whose leverage ratio and stock volatility are highest. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:660–688, 2017

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  • Jeehye Lee & Sol Kim & Yuen Jung Park, 2017. "Investor Sentiment and Credit Default Swap Spreads During the Global Financial Crisis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(7), pages 660-688, July.
    • Handle: RePEc:wly:jfutmk:v:37:y:2017:i:7:p:660-688
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    Cited by:

    1. Lei Wang & Xuan Jiang & Tingqiang Chen & Ruirui Zhu, 2024. "The Contagion of Debt Default Risk in Energy Enterprises Considering Carbon Price Fluctuations," Mathematics, MDPI, vol. 12(17), pages 1-27, September.
    2. Byström, Hans, 2019. "Internet Searches, Household Sentiment and Credit Spreads," Working Papers 2019:15, Lund University, Department of Economics.
    3. Koutmos, Dimitrios, 2019. "Asset pricing factors and bank CDS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 19-41.

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