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Corporate Credit Default Swap Systematic Factors

Author

Listed:
  • Chan, Ka Kei
  • Lin, Ming-Tsung
  • Lu, Qinye

Abstract

This study examines the statistical significance of systematic and firm-specific determinants of Credit Default Swap (CDS) price variations. We cast doubt on the firm-specific determinants showed in prior research to be statistical significance to CDS price variations. In this paper, two research questions are studied: (1) “Which and to what extent systematic factors can explain the individual CDS price variations?” and (2) “Which and to what extent the firm-specific factors can predict CDS spread variations that are not ex- plained by systematic factors?”. We find that systematic factors account for the majority changes of the CDS spreads (R2 = 35%). Merely 4 of 28 firm-specific factors are statistically significant predictors for CDS changes that are not explained by the systematic factors and they have little explanatory power (R2 = 8%). We document that individual CDS variations can

Suggested Citation

  • Chan, Ka Kei & Lin, Ming-Tsung & Lu, Qinye, 2020. "Corporate Credit Default Swap Systematic Factors," Essex Finance Centre Working Papers 29019, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:29019
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    File URL: https://repository.essex.ac.uk/29019/
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