We thank Bhanu Balasubramnian (referee) and Ken Cyree (associate editor) for their many helpful comments and suggestions. Remaining errors are our own. David Newton also thanks the Manchester Business School, UK, for a Visiting Fellowship.
REGIME-DEPENDENT LIQUIDITY DETERMINANTS OF CREDIT DEFAULT SWAP SPREAD CHANGES
Version of Record online: 17 JUN 2013
© 2013 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 36, Issue 2, pages 279–298, Summer 2013
How to Cite
Guo, B. and Newton, D. (2013), REGIME-DEPENDENT LIQUIDITY DETERMINANTS OF CREDIT DEFAULT SWAP SPREAD CHANGES. Journal of Financial Research, 36: 279–298. doi: 10.1111/j.1475-6803.2013.12011.x
- Issue online: 17 JUN 2013
- Version of Record online: 17 JUN 2013
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.