Regime Dependent Liquidity Determinant of Credit Default Swap Spread Changes

Biao Guo; David Newton

doi:10.1111/j.1475-6803.2013.12011.x

Regime Dependent Liquidity Determinant of Credit Default Swap Spread Changes

Biao Guo, David Newton

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

In this article we construct a liquidity measure for credit default swaps (CDS) and investigate the relation between the changes in CDS spreads and the determinants implied by structural models of default, including firm leverage, volatility, risk-free interest rate, and liquidity. Using a dummy-variable pooling regression and a Markov regime-switching model, we show strong evidence that these determinants, especially the liquidity determinant, are significant and time varying.

Original language	English
Pages (from-to)	279-298
Number of pages	21
Journal	Journal Of Financial Research
Volume	36
Issue number	2
DOIs	https://doi.org/10.1111/j.1475-6803.2013.12011.x
Publication status	Published - 17 Jun 2013

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title = "Regime Dependent Liquidity Determinant of Credit Default Swap Spread Changes",

abstract = "In this article we construct a liquidity measure for credit default swaps (CDS) and investigate the relation between the changes in CDS spreads and the determinants implied by structural models of default, including firm leverage, volatility, risk-free interest rate, and liquidity. Using a dummy-variable pooling regression and a Markov regime-switching model, we show strong evidence that these determinants, especially the liquidity determinant, are significant and time varying.",

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AB - In this article we construct a liquidity measure for credit default swaps (CDS) and investigate the relation between the changes in CDS spreads and the determinants implied by structural models of default, including firm leverage, volatility, risk-free interest rate, and liquidity. Using a dummy-variable pooling regression and a Markov regime-switching model, we show strong evidence that these determinants, especially the liquidity determinant, are significant and time varying.

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