The complete picture of Credit Default Swap spreads - a Quantile Regression approach
نویسندگان
چکیده
We study the determinants of Credit Default Swap (CDS) spreads through quantile regressions. In addition to traditional variables, the results indicate that CDS spreads are also determined by illiquidity costs. However, contrary to stocks or bonds, we show that CDS transaction costs should be measured by absolute, rather than relative, bid-ask spreads. Quantile regressions indicate that both the slopes and the goodness-of-fit of the model increase with CDS premiums, which is consistent with the credit spread puzzle. Furthermore, our results imply that the empirical models of CDS spreads based on classical mean regressions presented in most previous studies are only successful for the subset of high-risk firms. JEL Classification: G12, G13, C14, C23
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