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Title:The dynamics of short- and long-term CDS-spreads of banks PDF Logo
Authors:Almer, Thomas
Heidorn, Thomas
Schmaltz, Christian
Issue Date:2008
Series/Report no.:Working paper series // Frankfurt School of Finance & Management 95
Abstract:This paper studies 'Stylised Facts' and 'Determinants' of short-and long-term CDS-spreads of banks. As short-term spreads we choose 6M-, as long-term spreads we choose 5Y-spreads. In the section 'Stylised Facts' we found that the correlation between short-and long-term spreads for the total period is high (97%). However, the correlation in sub-periods varies across all possible correlations. Particularly, spreads can have negative correlation. In contrast to [Covitz and Downing, 2007], we find high positive (Covitz/Downing: high negative) correlation for turbulent market circumstances. In the section 'Deteminants' we confirm the Merton-factors (stock price, stock price volatility, interest rate level) for the 5Y-segment, but not for the 6M-segment. Furthermore, we do not find any empirical support that short-term spreads are particularly sensitive to illiquidity factors. In that sense, we also contrast [Covitz and Downing, 2007].
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008090112
Document Type:Working Paper
Appears in Collections:Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management

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