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Fundamentals, real-time uncertainty and CDS index spreads
The high level of economic uncertainty linked to the pace of the recovery process can persist after a crisis and has implications for the market pricing of firms’ credit risk reflected in credit default swap (CDS) spreads. This paper examines the role of key proxies for the economic state and its re...
Autores principales: | , |
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Formato: | Online Artículo Texto |
Lenguaje: | English |
Publicado: |
Springer US
2023
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Materias: | |
Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10090737/ http://dx.doi.org/10.1007/s11156-023-01127-6 |
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author | Audzeyeva, Alena Wang, Xu |
author_facet | Audzeyeva, Alena Wang, Xu |
author_sort | Audzeyeva, Alena |
collection | PubMed |
description | The high level of economic uncertainty linked to the pace of the recovery process can persist after a crisis and has implications for the market pricing of firms’ credit risk reflected in credit default swap (CDS) spreads. This paper examines the role of key proxies for the economic state and its real-time uncertainty in determining Northern American CDX index spreads. Focusing on the recovery period following the 2007–2009 global financial crisis, we find that measures of economic output, employment, inflation, and economic uncertainty, all significantly influence CDX spreads, beyond the impact of conventional determinants. Furthermore, our results provide evidence that the sensitivity of investment-grade and high-yield CDX differs across economic aspects. Moreover, our out-of-sample predictive analysis identifies indicators and uncertainty measures with significant predictive content for quarter-ahead CDX spreads. Taken together, our findings indicate that academic modelers and practitioners employing more accurate representations of the macroeconomy in CDS modeling and analysis can improve upon the models that rely solely on the typically employed economic output variables or on broad data aggregation. |
format | Online Article Text |
id | pubmed-10090737 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2023 |
publisher | Springer US |
record_format | MEDLINE/PubMed |
spelling | pubmed-100907372023-04-14 Fundamentals, real-time uncertainty and CDS index spreads Audzeyeva, Alena Wang, Xu Rev Quant Finan Acc Original Research The high level of economic uncertainty linked to the pace of the recovery process can persist after a crisis and has implications for the market pricing of firms’ credit risk reflected in credit default swap (CDS) spreads. This paper examines the role of key proxies for the economic state and its real-time uncertainty in determining Northern American CDX index spreads. Focusing on the recovery period following the 2007–2009 global financial crisis, we find that measures of economic output, employment, inflation, and economic uncertainty, all significantly influence CDX spreads, beyond the impact of conventional determinants. Furthermore, our results provide evidence that the sensitivity of investment-grade and high-yield CDX differs across economic aspects. Moreover, our out-of-sample predictive analysis identifies indicators and uncertainty measures with significant predictive content for quarter-ahead CDX spreads. Taken together, our findings indicate that academic modelers and practitioners employing more accurate representations of the macroeconomy in CDS modeling and analysis can improve upon the models that rely solely on the typically employed economic output variables or on broad data aggregation. Springer US 2023-04-12 /pmc/articles/PMC10090737/ http://dx.doi.org/10.1007/s11156-023-01127-6 Text en © The Author(s) 2023 https://creativecommons.org/licenses/by/4.0/Open AccessThis article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/ (https://creativecommons.org/licenses/by/4.0/) . |
spellingShingle | Original Research Audzeyeva, Alena Wang, Xu Fundamentals, real-time uncertainty and CDS index spreads |
title | Fundamentals, real-time uncertainty and CDS index spreads |
title_full | Fundamentals, real-time uncertainty and CDS index spreads |
title_fullStr | Fundamentals, real-time uncertainty and CDS index spreads |
title_full_unstemmed | Fundamentals, real-time uncertainty and CDS index spreads |
title_short | Fundamentals, real-time uncertainty and CDS index spreads |
title_sort | fundamentals, real-time uncertainty and cds index spreads |
topic | Original Research |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10090737/ http://dx.doi.org/10.1007/s11156-023-01127-6 |
work_keys_str_mv | AT audzeyevaalena fundamentalsrealtimeuncertaintyandcdsindexspreads AT wangxu fundamentalsrealtimeuncertaintyandcdsindexspreads |