scholarly journals Is default risk priced equally fast in the credit default swap and the stock markets? AN empirical investigation

2017 ◽  
Vol 51 ◽  
pp. 39-57 ◽  
Author(s):  
Konstantinos Tolikas ◽  
Nikolas Topaloglou
Keyword(s):  
Stock Markets ◽  
Default Risk ◽  
Empirical Investigation ◽  
Credit Default Swap ◽  
Credit Default ◽  
Default Swap

scholarly journals Sovereign CDS Premiums’ Reaction to Macroeconomic News: An Empirical Investigation

Complexity ◽  
2021 ◽  
Vol 2021 ◽  
pp. 1-13
Author(s):  
Min Lu ◽  
Michele Passariello ◽  
Xing Wang
Keyword(s):  
Empirical Investigation ◽  
Credit Default Swap ◽  
Sample Period ◽  
Market Uncertainty ◽  
Macroeconomic News ◽  
Sovereign Credit ◽  
News Announcements ◽  
Credit Default ◽  
Default Swap

We assess the efficiency of the sovereign credit default swap (CDS) market by investigating how sovereign CDS spreads react to macroeconomic news announcements. Contrary to the vast majority of the existing literature, one of our main findings supports the hypothesis that news announcements reduce market uncertainty and, thus, that both better- and worse-than-expected news lower CDS prices during our sample period. In addition, we find that CDS spreads respond differently to the four macroindicators across the three different regions. Our findings might help investors in these areas to interpret the surprises of macronews announcements when making decisions in CDS markets.

scholarly journals The Determinants of Credit Default Swap Premia

2009 ◽  
Vol 44 (1) ◽  
pp. 109-132 ◽  
Author(s):  
Jan Ericsson ◽  
Kris Jacobs ◽  
Rodolfo Oviedo
Keyword(s):  
Default Risk ◽  
Common Factor ◽  
Explanatory Power ◽  
Empirical Work ◽  
Credit Default Swap ◽  
Principal Component ◽  
Corporate Bond ◽  
Credit Default ◽  
Default Swap ◽  
Swap Spreads

AbstractVariables that in theory determine credit spreads have limited explanatory power in existing empirical work on corporate bond data. We investigate the linear relationship between theoretical determinants of default risk and default swap spreads. We find that estimated coefficients for a minimal set of theoretical determinants of default risk are consistent with theory and are significant statistically and economically. Volatility and leverage have substantial explanatory power in univariate and multivariate regressions. A principal component analysis of residuals and spreads indicates limited evidence for a residual common factor, confirming that the theoretical variables explain a significant amount of the variation in the data.

scholarly journals The Impact of Earnings on the Pricing of Credit Default Swaps

2009 ◽  
Vol 84 (5) ◽  
pp. 1363-1394 ◽  
Author(s):  
Jeffrey L. Callen ◽  
Joshua Livnat ◽  
Dan Segal
Keyword(s):  
Default Risk ◽  
Credit Default Swap ◽  
Credit Default Swaps ◽  
Cash Flows ◽  
Earnings Surprises ◽  
Credit Default ◽  
Percent Increase ◽  
Default Swap ◽  
Highly Correlated ◽  
The Impact

ABSTRACT: This study evaluates the impact of earnings on credit risk in the Credit Default Swap (CDS) market using levels, changes, and event study analyses. We find that earnings (cash flows, accruals) of reference firms are negatively and significantly correlated with the level of CDS premia, consistent with earnings (cash flows, accruals) conveying information about default risk. Based on the changes analysis, a 1 percent increase in ROA decreases CDS rates significantly by about 5 percent. We also find that (1) CDS premia are more highly correlated with below-median earnings than with above-median earnings and (2) CDS premia are more highly correlated with earnings of low-rated firms than with earnings of high-rated firms. Evidence indicates further that short-window earnings surprises are negatively and significantly correlated with CDS premia changes in the three-day window surrounding the preliminary earnings announcement, although the impact is concentrated in the shorter maturities.

scholarly journals Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

2019 ◽  
Author(s):  
Tim Xiao
Keyword(s):  
Asset Pricing ◽  
Credit Risk ◽  
Financial Markets ◽  
Default Risk ◽  
Credit Default Swap ◽  
Financial Derivatives ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Credit Default ◽  
Default Swap

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market.

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