Abstract
This paper proposes two new Credit Default Swap (CDS) endogenous systematic
factors constructed from peer-CDS information. The factors capture slow-moving
credit risk information, as well as fast-moving newly arrived market information
embedded in the most recent CDS quotes. Using a sample of U.S. non-financial
listed firms from 2002 to 2011, we find that these two endogenous systematic factors
dominate firm-specific factors and other widely known systematic factors in in
sample and out-of-sample CDS spread predictions.
factors constructed from peer-CDS information. The factors capture slow-moving
credit risk information, as well as fast-moving newly arrived market information
embedded in the most recent CDS quotes. Using a sample of U.S. non-financial
listed firms from 2002 to 2011, we find that these two endogenous systematic factors
dominate firm-specific factors and other widely known systematic factors in in
sample and out-of-sample CDS spread predictions.
| Original language | English |
|---|---|
| Journal | European Journal of Finance |
| Early online date | 23 Sept 2019 |
| DOIs | |
| Publication status | Published - 2019 |
Keywords
- CDS spread
- credit risk
- liquidity risk
- systematic factors