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Entrop, OSchiemert, RWilkens, M (2014). Spread Risk Premia in Corporate Credit Default Swap Markets. Credit and Capital Markets – Kredit und Kapital, 47(4), 571-610. https://doi.org/10.3790/ccm.47.4.571
Entrop, Oliver Schiemert, Richard Wilkens, MarcoEntrop, Oliver Schiemert, Richard Wilkens, MarcoEntrop, Oliver Schiemert, Richard Wilkens, Marco (2014). "Spread Risk Premia in Corporate Credit Default Swap Markets" Credit and Capital Markets – Kredit und Kapital, vol. 47no. 4, 2014 pp. 571-610. https://doi.org/10.3790/ccm.47.4.571
Entrop, OSchiemert, RWilkens, M (2014). Spread Risk Premia in Corporate Credit Default Swap Markets. Credit and Capital Markets – Kredit und Kapital, Vol. 47 (Issue 4), pp 571-610. https://doi.org/10.3790/ccm.47.4.571

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Spread Risk Premia in Corporate Credit Default Swap Markets

Entrop, Oliver | Schiemert, Richard | Wilkens, Marco

Credit and Capital Markets – Kredit und Kapital, Vol. 47 (2014), Iss. 4 : pp. 571–610

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Article Details

Author Details

Prof. Dr. Oliver Entrop, University of Passau, Chair of Finance and Banking, Innstr. 27, D-94032 Passau, Germany, phone: +49 851 509 2460

Dr. Richard Schiemert, Catholic University of Eichst tt-Ingolstadt, Ingolstadt School of Management, Auf der Schanz 49, D-85049 Ingolstadt, Germany, phone: +49 841 937 1881

Prof. Dr. Marco Wilkens, University of Augsburg, Chair of Finance and Banking, Universit tsstr. 16, D-86159 Augsburg, Germany, phone: +49 821 598 4124

Abstract

The spread risk premium component of credit default swap (CDS) spreads represents a compensation demanded by protection sellers for future changes in CDS spreads caused by unpredictable fluctuations in the reference entity"s risk-neutral default intensity. This paper defines and estimates a measure of the spread risk premium component in CDS spreads of a sample of European investment-grade firms by using a stochastic intensity credit model. Our results show that, on average, investors demand a positive premium for such mark-to-market risks. After controlling for CDS market conditions, like liquidity and supply/demand effects, a panel data analysis of the estimated spread risk premia reveals a positive impact of event risk captured by the overall stock market volatility and a negative impact of investors" appetite for exposure to credit markets as reflected by the overall CDS market.