Intra-industry spillover effect on the US CDS market

Abstract

This paper uses Event Study Methodology to ascertain if credit rating events from the S&PGlobal credit rating agency have an impact on Credit Default Swap (CDS) spreads of companies included in the S&P 500 index for the period ranging from June 2013 to May 2017. The study incorporates an industry segmentation to quantify the spillover effect a credit event may have on non-event competing firms. 127 upgrades and 124 downgrades are analyzed. Findings indicate that the CDS markets do not systematically experience abnormal spread changes for downgrades while upgrades are not more anticipated. The credit default swap markets should not be simplified on a market level, industries must be considered as there are signs of heterogenous reactions to rating changes from said industries. There is tentative evidence for intra-industry spillover to non-event firms, but support is not unequivocal.

Date of Award	21 Oct 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Ivan Alfaro (Supervisor)