Determinanter for bevægelserne i credit default swap-spændet

Rasmus Møller Pedersen

Student thesis: Master thesis

Abstract

The main objective of this thesis is to establish which determinants have influence on the movement in Credit Default Swap spreads. The analysis evaluates daily data from between the 01-01-2005 until 06-30-2010. The companies in the regression are all from the American CDX index, which consist of 125 entities. These entities have been filtered down to 77 companies. The filtration process has been based solely on available data on the companies. The regression has been estimated with differences in the CDS-spread as the dependent variable. The influence on variables such as; stock volatility, stock return, stock jumps, CDS liquidity, leverage and the risk free interest rate has been investigated. Furthermore, the different variables have been included as lagged variables in the regression. The results show that the variables stock volatility and stock return both have significant influence in the CDS-spread and the relationship is in line with the theory on the subject. For the stock jumps it is shown that the positive jumps has no significant influence on the CDS-spread. The negative jump however has a significant negative relationship with the stock return. The parameter estimated for negative jump performance is more than 3 times as high, as the parameter estimated for the jump corrected return. This shows that stock jumps have high influence on the CDS-spread when they appear. Moreover the regression shows that the lagged variables often have more explanatory power than the variables that are not lagged. This result is highly surprising especially the fact that the differences in CDS liquidity at time t-1 has influence on the CDS-spread at time t. This abnormality cannot be explained by the normal theories, and further studies are needed.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2011
Number of pages95