Valuation of systematic risk in the cross-section of credit default swap spreads

Claußen, A; Löhr, S; Rösch, D; Scheule, H

Valuation of systematic risk in the cross-section of credit default swap spreads

Claußen, A

Löhr, S Rösch, D Scheule, H

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Publication Type:: Journal Article
Citation:: Quarterly Review of Economics and Finance, 2017, 64 pp. 183 - 195
Issue Date:: 2017-05-01

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Field	Value	Language
dc.contributor.author	Claußen, A https://orcid.org/0000-0002-8902-3334	en_US
dc.contributor.author	Löhr, S	en_US
dc.contributor.author	Rösch, D	en_US
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654	en_US
dc.date.available	2020-05-25T19:15:10Z
dc.date.issued	2017-05-01	en_US
dc.identifier.citation	Quarterly Review of Economics and Finance, 2017, 64 pp. 183 - 195	en_US
dc.identifier.issn	1062-9769	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124282
dc.description.abstract	© 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.	en_US
dc.relation.ispartof	Quarterly Review of Economics and Finance	en_US
dc.relation.isbasedon	10.1016/j.qref.2016.06.007	en_US
dc.subject.classification	Finance	en_US
dc.title	Valuation of systematic risk in the cross-section of credit default swap spreads	en_US
dc.type	Journal Article
utslib.citation.volume	64	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1503 Business and Management	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.publication-status	Published	en_US
pubs.volume	64	en_US

Abstract:

© 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.

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http://hdl.handle.net/10453/124282