Exploring the Factors of the Credit Default Swap Spread in Different Business Sectors

Sammanfattning: In this study, we investigate the effect of market factors on credit default swap spreads aggregated by specific business sectors. The market factors include commodity spot prices, foreign exchange spot prices, equity index prices and interest swap rates. Using linear regression modelling, we find that many of the factors are correlated to the credit default swap spreads. To examine the collective effect of the factors on the credit default swap spread, we produce linear models using best subsets regression. The empirical results suggest that many of the factors are significant in explaining the credit default swap. Our models show significance of regression on a 99% level, and most variables have correlations that are consistent with previous research. Notably, we find that the factors show different levels of significance for each of the sectors. Based on this investigation we conclude that there in fact exist relationships between the market factors and the credit default swap spread changes, and that these relationships are business sector specific.