Market-Based Structural Determinants of Australian CDS Spreads

43 Pages Posted: 6 Oct 2011

See all articles by Andrew Ainsworth

Andrew Ainsworth

University of Wollongong - School of Accounting, Economics & Finance

Jiri Svec

The University of Sydney - Discipline of Finance

Date Written: September 7, 2011

Abstract

We analyse the determinants of Australian corporate credit default swap (CDS) spreads. In addition to structural determinants, consisting of equity returns, equity volatility and risk-free interest rates, we show that CDS spreads are impacted by the uncertainty of asset values as proxied by the dispersion in equity analysts’ price targets. Market-based variables including the changes in the S&P/ASX200 index return and stock-level option-implied volatility also contain valuable information about spreads. The analysis of spread determinants also shows that during the financial crisis equity-based market variables featured more prominently in the pricing of CDS spreads than credit ratings.

Keywords: credit default swaps, structural models, asset value uncertainty, financial crisis

JEL Classification: G12, G13

Suggested Citation

Ainsworth, Andrew and Svec, Jiri, Market-Based Structural Determinants of Australian CDS Spreads (September 7, 2011). Available at SSRN: https://ssrn.com/abstract=1939520 or http://dx.doi.org/10.2139/ssrn.1939520

Andrew Ainsworth (Contact Author)

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
60
Abstract Views
597
rank
472,745
PlumX Metrics