An Empirical Analysis of the Dynamic Relation between Investment-Grade Bonds and Credit Default Swaps

TL;DR: In this article, the relationship between credit default swap spreads and bond yields was examined and conclusions on the benchmark risk-free rate used by participants in the credit derivatives market were reached.

TL;DR: In this article, the authors use news reflected in the stock market as a benchmark for public information, and find significant incremental information revelation in the credit default swap market under circumstances consistent with the use of non-public information by informed banks.

TL;DR: In this article, the authors analyzed the liquidity components of corporate bond spreads during 2005-2009 using a new robust illiquidity measure and found that the spread contribution from illiquidities increases dramatically with the onset of the subprime crisis, and that flight-to-quality is confined to AAA-rated bonds.

TL;DR: In this paper, the authors propose a framework for measuring and stress testing the systemic risk of a group of major financial institutions, measured by the price of insurance against financial distress, which is based on ex ante measures of default probabilities of individual banks and forecasted asset return correlations.

TL;DR: In this paper, the authors apply Bayesian model averaging to a battery of candidate variables for determining meaningful systematic risk factors and show that these factors play a much more prominent role during periods of market turmoil.

TL;DR: In this article, the authors quantified and explained valuation differences between credit default swaps and corporate bonds from a sample of European investment-grade firms based on all information gained through the calibration of a stochastic intensity credit model to the time series of the issuer's CDS curve.

TL;DR: In this article, the authors decompose the unexpected equity returns into cash flow and discount rate news and examine the impact of the shocks on the correlations, finding that discount rates news explains the majority fraction of the correlations.

TL;DR: In this article, the authors investigated the correlation between credit default swap (CDS) spread changes during the credit crisis and investigated the source of that increase, finding that changes in the fundamental determinants of credit risk account for only 20% of the increase in correlations.