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
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: Suggested Citation