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Essays on credit default swaps

Essays on credit default swaps

Klenina, Ekaterina (2017) Essays on credit default swaps. PhD thesis, University of Greenwich.

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Abstract

This research provides three self-contained empirical studies on the interrelationship between Credit Default Swap (CDS) and the bond and equity markets.

The first essay performs an analysis of the relationship between CDS premia denominated in Pound Sterling and bond spread denominated in Pound Sterling and the Euro currency. We found clear evidence that the CDS market leads the bond market and that the influence of CDS premia on bond spread was stronger before the financial crisis. We also found that the CDS premia has less influence on investment grade bonds than on junk bonds.

The second essay expands upon the first essay by employing a broader sample of both CDS premia denominated in Euro and bond spread denominated in Euros and United States dollars. We found that CDS premia leads the bond spread to be denominated in Euro. Before the financial crisis, the influence of CDS premia was stronger on the bond spread in USD than on the bond spread in Euros, while it also proved to be less for USD investment grade bonds.

The third essay contributes to the currently scarce literature on the interrelation between the three markets (CDS, bond and equity) by employing linear regression model, including consideration of firm specific and market factors to explain the change in the three markets. The results confirm the positive correlation between CDS and bond spreads and those which are negative between CDS premia and equity return. Market value and market return are shown to be positively correlated with equity market and negatively with CDS and bond markets.

At the same time, market volatility has a different influence on the markets. We found that equity return is negatively correlated with bond spread, although in some cases the correlation is positive, which confirms previous studies.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Credit default swap; bonds, equity market; global financial crisis;
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 26 Apr 2019 16:12
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/23748

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