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: The authors showed that much of the time series variation in the credit spread on high yield bonds is attributable to changes in the "credit risk premium" rather than changes in expected default losses.

TL;DR: The authors found that the inception of CDS trading on reference firms' debt is associated with a decreased number and lower probability of amendments, restatements, and rollovers to existing lenders of bank loans.

TL;DR: In this paper, the authors investigated the price formation of credit risk premia across European sovereign countries and retrieved a metric of such premia under the statistical measure using bootstrap techniques on hedging portfolios.

TL;DR: In this paper, the authors argue that first passage time models are likely to better than affine hazard rate models in modelling stressed credit markets and confirm their superior performance in explaining the behavior of Credit Default Swap rates for the major US banking groups over the period of the financial crisis.