TY - JOUR

T1 - Slow- and fast-moving information content of CDS spreads

T2 - new endogenous systematic factors

AU - Lin, Ming Tsung

AU - Kolokolova, Olga

AU - Poon, Ser Huang

PY - 2021/1/31

Y1 - 2021/1/31

N2 - 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.

AB - 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.

KW - CDS spread

KW - credit risk

KW - liquidity risk

KW - systematic factors

U2 - 10.1080/1351847X.2019.1667846

DO - 10.1080/1351847X.2019.1667846

M3 - Journal article

AN - SCOPUS:85073816310

VL - 27

SP - 136

EP - 157

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 1-2

ER -