Finance Seminar（2014-04）

Topic: What moves CDS spread levels and changes? New evidences on European credit market

Speaker: Ziqiong Qi, Université de Rennes 1 & CREM

Time: Wednesday, 26 February, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract: This paper considers determinants of credit default swaps (CDS) spreads on European CDS market. We empirically investigate CDS related determinants (new proxies for CDS liquidity and CDS volatility) as well as a set of theoretical determinants that explain weekly changes in credit default swap spreads before, during and after the 2007-2009 financial crisis. Empirical results show that CDS liquidity and CDS volatility have substantial explanatory power both at individual and aggregate levels. Associated estimated coefficients are consistent with theory: they are both statistically and economically significant. This paper also provides deeper insights according to sector-wide and credit rating classes. Principal component analysis of regression residuals reveal evidence both market wide and sector wide common factor. Quantile regressions are finally used as robustness check exercise to confirm our qualitative conclusions.