Valuation of systematic risk in the cross-section of credit default swap spreads
- Publication Type:
- Journal Article
- Quarterly Review of Economics and Finance, 2017, 64 pp. 183 - 195
- Issue Date:
Files in This Item:
Copyright Clearance Process
- Recently Added
- In Progress
- Open Access
This item is currently unavailable due to the publisher's embargo.
The embargo period expires on 1 Jun 2019
© 2016 Board of Trustees of the University of Illinois We analyze the pricing of systematic risk factors in credit default swap (CDS) contracts in a two-stage empirical framework. Firstly we estimate contract-specific sensitivities (betas) to several systematic risk factors by time-series regressions using quoted CDS spreads of 339 U.S. entities from January 2004 to December 2010. Secondly, we show that these contract-specific sensitivities are cross-sectionally priced in CDS spreads after controlling for individual risk factors. We find that the credit market climate, the Cross-market Correlation, and the market volatility explain CDS spread changes and that their corresponding sensitivities (betas) are particularly priced in the cross-section. Our basic risk factors explain about 83% (90%) of the CDS spreads prior to (during) the crisis.
Please use this identifier to cite or link to this item: