Macroeconomic Uncertainty and Credit Default Swap Spreads
Baum, Christopher, and Chi Wan. “Macroeconomic Uncertainty and Credit Default Swap Spreads”. Boston College Working Papers in Economics 724, 2009.
This paper empirically investigates the impact of macroeconomic uncertainty on the spreads of individual firms' credit default swaps (CDS). While existing literature ac- knowledges the importance of the levels of macroeconomic factors in determining CDS spreads, we find that the second moments of these factors--macroeconomic uncertainty--have significant explanatory power over and above that of traditional macroeconomic factors such as the risk-free rate and the Treasury term spread.