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 Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

2005 ◽  
Vol 60 (5) ◽  
pp. 2213-2253 ◽  
Author(s):  
FRANCIS A. LONGSTAFF ◽  
SANJAY MITHAL ◽  
ERIC NEIS
Keyword(s):  
Default Risk ◽  
Credit Default Swap ◽  
Yield Spreads ◽  
Credit Default ◽  
Default Swap ◽  
New Evidence

The Rise of Credit Default Swaps and Its Implications on Financial Stability

2018 ◽  
pp. 336-350
Author(s):  
Fatma Sezer Dural
Keyword(s):  
Credit Risk ◽  
Exponential Growth ◽  
Financial Stability ◽  
Credit Default Swap ◽  
Credit Default Swaps ◽  
Financial Instruments ◽  
Credit Crisis ◽  
Credit Default ◽  
Default Swap ◽  
The Stability

The credit default swap market has experienced an exponential growth in recent decades. Though the fırst credit default swap contract was negotiated in the mid-1990s, the market has enjoyed a surge of popularity beginning in 2003. By the end of June 2013, the outstanding amount reached 24.3 trillion dollars. It is mostly used to transfer or to hedge credit risk. Concurrently with the global credit crisis, several shortcomings in CDS markets have appeared. One of the obvious questions is whether they affect the stability of financial markets. In this context after broader exhibition of credit default swaps market, speculative use of CDS, inception of central counterparty, and transparency of CDS market is handled. As a conclusion, it is true that the CDS market still has some weaknesses, but it is no more prone to be destabilizing than other financial instruments. This is shown in this chapter.

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 Effect of Executive Compensation on Credit Default Swap Spread

2019 ◽  
Vol 21 (1) ◽  
pp. 19
Author(s):  
Meizaroh Meizaroh ◽  
Masripah Masripah
Keyword(s):  
Executive Compensation ◽  
Risk Taking ◽  
Time Series Data ◽  
Credit Default Swap ◽  
Best Interests ◽  
Series Data ◽  
Credit Default ◽  
Default Swap ◽  
Risk Taking Behavior ◽  
The Impact

Investors have been trying to formulate the optimum composition of executives’ compensation which will incentivize the executives to perform better and act in the shareholders’ best interests. This study aims to find empirical evidence about the impact of executive compensation on the default risk with the Credit Default Swap (CDS) spread as the proxy, using panel data to test the research model, which combines the analysis of cross-section and time series data. The study is conducted based on 1,416 observations of 177 U.S. companies from 2008-2015. The data are mainly collected from Datastream, Compustat, CRSP, and the US SEC’s EDGAR database. The current study provides a contribution by suggesting that executives’ compensation will trigger risk-taking behavior. The results of this study reveal, firstly, both equity-based compensation and debt-like compensation induce risk-taking behavior by the executives. Secondly, the correlation between both the form of the compensation and the CDS spread is weakened in a high information asymmetry environment. Lastly, this study finds that a CFO’s compensation has more influence on the CDS spread, compared to the other board executives, but this condition only occurs when the compensation is awarded in the form of debt-like compensation. To improve the generalization of the results, a further study may consider expanding the sample into several countries.

Credit default swap valuation with counterparty default risk and market risk

2004 ◽  
Vol 6 (2) ◽  
pp. 49-80 ◽  
Author(s):  
Mi Ae Kim ◽  
Tong Suk Kim
Keyword(s):  
Default Risk ◽  
Credit Default Swap ◽  
Market Risk ◽  
Credit Default ◽  
Default Swap
Sign in / Sign up

Export Citation Format

Share Document