Slow- and Fast-Moving Information Content of CDS Spreads: New Endogenous Systematic Factors

The European Journal of Finance, Forthcoming

46 Pages Posted: 21 Feb 2014 Last revised: 25 Sep 2019

See all articles by Ming-Tsung Lin

Ming-Tsung Lin

University of Sussex

Olga Kolokolova

Lancaster University Management School

Ser-Huang Poon

Alliance Manchester Business School, University of Manchester; Alan Turing Institute

Date Written: September 4, 2019

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.

Keywords: CDS spread, credit risk, liquidity risk, systematic factors

JEL Classification: G13, G23

Suggested Citation

Lin, Ming-Tsung and Kolokolova, Olga and Poon, Ser-Huang, Slow- and Fast-Moving Information Content of CDS Spreads: New Endogenous Systematic Factors (September 4, 2019). The European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2398876 or http://dx.doi.org/10.2139/ssrn.2398876

Ming-Tsung Lin (Contact Author)

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Olga Kolokolova

Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Ser-Huang Poon

Alliance Manchester Business School, University of Manchester ( email )

Alliance Manchester Business School
Booth Street West
Manchester, Manchester M15 6PB
United Kingdom
+44 161 275 4031 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.manchester.ac.uk/research/Ser-huang.poon/

Alan Turing Institute ( email )

British Library, 96 Euston Road
96 Euston Road
London, NW12DB
United Kingdom

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