Estimating Credit Default Swap Spreads Using Accounting Data, Market Quotes and Credit Ratings: the European Banks Case

Michele Di Marcantonio, Enrico Laghi, Eugenio D'Amico

Research output: Contribution to journalArticlepeer-review

Abstract

The aim of this paper is to define a model for estimating the theoretical Credit Default Swap spread of European banks considering firms’ accounting data, market quotes, official ratings and macroeconomic variables. We detect a significant log-linear relation between Credit Default Swaps spreads and four explanatory variables determined on the basis of the stock price, the financial structure, the equity composition, the incidence of the reserve for loan losses on total loans, the official ratings and macroeconomic indicators of the country of domicile of each company. The empirical results show that for the period from 2008 to 2013 the model has a high statistical significance and a remarkable explanatory power. Our main contribution to the existing literature is the exploration of new determinants of banks’ credit risk and the provision of new evidence on the determinants of banks’ default risk in the crisis and post-crisis European context. Furthermore, we define a practical model for estimating Credit Default Swap spreads of banks suitable for professional use.
Original languageEnglish
Pages (from-to)59-81
Number of pages23
JournalFINANCIAL REPORTING
Publication statusPublished - 2014
Externally publishedYes

Keywords

  • Credit Default Swaps
  • Credit Risk
  • Default Risk Determinants
  • Structural Models

Fingerprint

Dive into the research topics of 'Estimating Credit Default Swap Spreads Using Accounting Data, Market Quotes and Credit Ratings: the European Banks Case'. Together they form a unique fingerprint.

Cite this