XXV Edition

1-2 December 2016"

The Determinants of Cds Premium: What is the Impact of the Financial Crisis?

Di Tommaso Caterina, University of Calabria
Drago Danilo, Università of Calabria

This article analyses the determinants of credit default swap. By using a regression model in levels and differences, we study the impact of firm-specific and market variables on the CDS spreads of 497 US companies over the period 2007-2015. We identify as key variables leverage, option implied volatility and yield-curve slope. We analyse the impact of the financial crisis overall and sector by sector. The empirical analysis shows a structural change in pricing the credit risk due to the financial crisis. We find that the financial crisis shifted the price of credit risk from an idiosyncratic to a systematic perspective. Our findings suggest that the investors become more skeptical about the credit rating issued by rating agencies.

Area: Asset Pricing and Derivatives

Keywords: Credit default swap, credit risk, sectorial analysis, financial crisis

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