Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 5 (2017), No. 1, Pages 9-31

DOI: 10.12735/jfe.v5n1p09

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Determinants of Credit Default Swap Spreads: A Four-Market Panel Data Analysis

Matthew C. Li1  Xiaoqing (Maggie) Fu2 

1School of Management, Royal Holloway University of London, UK
2Faculty of Business Administration, University of Macau, Taipa, Macau


To Cite this Article     Article Views: 844     Downloads: 477  Since deposited on 2017-04-24


This paper attempts to elucidate whether firm performance and macroeconomic conditions play a significant role in explaining credit default swap (CDS) spreads. Our panel dataset covers 112 reference entities in four markets (South Korea, Hong Kong, France, and Germany) for the period 2001-12. Overall, our results suggest that market value indicators (Tobin’s Q, stock market returns, and the interest rate) appear to be more important than book value indicators (i.e., ROA, ROE, and the GDP growth rate) in determining CDS spreads. Moreover, Asian CDS markets are shown to be more sensitive to both GDP and stock market volatility, than the two European markets. Finally, the 2007-09 global financial crisis may have significantly affected the CDS market as a whole, but it generally did not affect the individual markets. These results are robust to various model specifications. This paper contributes to the understanding of CDS determinants at firm-, economy-, and market-level.

JEL Classifications: G10, G15, G32

Keywords: credit default swaps, structural models, firm performance, macroeconomic conditions, financial crisis, GARCH volatility

To Cite this Article: Li, M.C., & Fu, X. (2017). Determinants of credit default swap spreads: A four-market panel data analysis. Journal of Finance and Economics, 5(1), 9-31.

Copyright © M. C. Li & X. Fu

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Determinants of Credit Default Swap Spreads: A Four-Market Panel Data Analysis