The Determinants of Credit Default Swap Premia

Ericsson, Jan; Jacobs, Kris; Oviedo, Rodolfo

doi:10.2139/ssrn.601082

Cited by 244 publications

(332 citation statements)

References 46 publications

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“…For example, Hammoudeh, Nandha and Yuan (2013) examine the movements of the CDS indices for the three financial-sectors, banking, financial services and insurance in the short-and long-run over the period [2004][2005][2006][2007][2008][2009] and find that the individual dynamic adjustments to the equilibrium are different for those sectors.Other studies examine the CDS spreads as pure measures of credit risk (e.g., Bharath and Shumway, 2008, Blanco et al, 2005, Ericsson et al, 2006and Ericsson et al, 2009 or analyze the relationships between equity, bond and credit markets using time series instead of cross-sectional data (e.g., Bystrom, 2006, Zhu, 2006, Fung et al, 2008, Forte and Lovreta, 2009, Norden and Weber, 2009and Srivastava et al, 2016. For example, Berndt et al (2008) Blanco et al (2005), using a small sample of US and European firms, find support for the theoretical arbitrage relationship between CDS prices and credit spreads on average.…”

Section: Related Literaturementioning

confidence: 99%

Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

Lahiani

Hammoudeh

Gupta

2016

International Review of Economics & Finance

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Highlights• The paper examines asymmetric and nonlinear transmissions for sector CDS spreads.• The model is NARDL and CDSs are for bank, financial service and insurance sectors.• The influences come from the financial, equity risk and energy price factors.• There is evidence of short-and long-run nonlinearities and asymmetries for the CDSs.• There are also short-and long-run asymmetries in the economic and risk influences. Abstract:This paper investigates the asymmetric and nonlinear transmission of financial and energy prices to US five-year financial CDS sector index spreads for the banking, financial services and insurance sectors in the short-and long-run over the recent periods revolving around the global financial crisis. We employ the nonlinear ARDL (NARDL) model to account for the short-and long-run asymmetries in the sensitivity of those CDS sector index spreads to their determinants. Our findings suggest that there is evidence of short-and long-run nonlinearities and asymmetries in the adjustment process of the three CDS variables. There are also shortand long-run asymmetries in the influences of macroeconomic and financial variables on the CDS sector spreads. These findings are important for policymakers who deal with credit risks at the sector levels.JEL Codes: C32, F65, G01

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Section: Related Literaturementioning

confidence: 99%

Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

Lahiani

Hammoudeh

Gupta

2016

International Review of Economics & Finance

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“…Recent studies which have tried to explain CDS spread levels and changes are from Blanco et al (2005), Longstaff et al (2005), Benkert (2004), Alexander and Kaeck (2008), Zhang et al (2009), Ericsson et al (2009) and Cao et al (2010. Their findings are generally more encouraging (than previous studies on credit spreads) as credit variables seem to explain a great deal of the variation in CDS spreads.…”

Section: Introductionmentioning

confidence: 85%

“…These studies focused on credit spreads obtained from bonds and found that, on average, credit risk models under-predict spreads. However, Ericsson et al (2009) showed that credit risk models seem to perform better when applied to CDS spreads.…”

Section: Introductionmentioning

confidence: 99%

Are CDS spreads predictable? An analysis of linear and non-linear forecasting models

Avino¹,

Nneji²

2014

International Review of Financial Analysis

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This paper investigates the forecasting performance for CDS spreads of both linear and nonlinear models by analysing the iTraxx Europe index during the financial crisis period which began in mid-2007. The statistical and economic significance of the models' forecasts are evaluated by employing various metrics and trading strategies, respectively. Although these models provide good in-sample performances, we find that the non-linear Markov switching models underperform linear models out-of-sample. In general, our results show some evidence of predictability of iTraxx index spreads. Linear models, in particular, generate positive Sharpe ratios for some of the strategies implemented, thus shedding some doubts on the efficiency of the European CDS index market.JEL classification: G01; G17; G20; C22; C24

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“…Existing literature (Benkkert [1]; Breitenfellner and Wagner [2]; Cesare and Guazzarotti [3]; Doshi, Ericsson, Jacobs and Turnbull [4]; Ericsson, Jacobs and Oviedo [5]; Hull, Predescu and White [6]; Skinner, Timothy and Townend [7]) focused on the Corporate CDS or CDS Indices while exploring either its determinants, Valuation or the No -arbitrage relationship between Corporate CDS and bond market.…”

Section: Introductionmentioning

confidence: 99%

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

Ofori¹

2015

IJTEF

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The Determinants of Credit Default Swap Premia

Cited by 244 publications

References 46 publications

Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

Linkages between financial sector CDS spreads and macroeconomic influence in a nonlinear setting

Are CDS spreads predictable? An analysis of linear and non-linear forecasting models

Regime Switching Determinants of the Japanese Sovereign Credit Default Swaps Spreads

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