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Three Essays on CDS and Market Integration.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Three Essays on CDS and Market Integration./
Author:	Xu, Haohua.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2021,
Description:	227 p.
Notes:	Source: Dissertations Abstracts International, Volume: 83-10, Section: B.
Contained By:	Dissertations Abstracts International83-10B.
Subject:	Funding. -
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=29043262
ISBN:	9798209927334

Three Essays on CDS and Market Integration.
Xu, Haohua.

Three Essays on CDS and Market Integration. - Ann Arbor : ProQuest Dissertations & Theses, 2021 - 227 p.

Source: Dissertations Abstracts International, Volume: 83-10, Section: B.

Thesis (Ph.D.)--McGill University (Canada), 2021.

This item must not be sold to any third party vendors.

Literature proposes various ways to understand the corporate credit risk using different financial assets. This thesis empirically verifies these practices, by studying the relations between the credit and equity (derivatives) markets, as well as addressing the methodological issue in investigating such relations. The first essay studies methodologies in computing CDS returns. While existing CDS return metrics in the literature are poor proxies for the real CDS return, our novel metric has no less than 99% of the correlation with the real CDS return. Our empirical evidence demonstrates the importance of this metric in various empirical settings, such as evaluating a CDS investment strategy.In the second essay, we examine the predictability between the CDS term structure and equity returns. We find that the information set for the predictability can be significantly improved by incorporating the term structure of CDS spreads. The sign of the predictability is dependent on the shape of the term structure. A structural credit risk framework shows that the term structure contains information on the endogenous default boundary and the asset volatility. This information is tightly related to the equity risk premium. Our work highlights the importance of incorporating the credit spread term structure information in examining the relation between the equity and credit markets.The third essay studies the integration between the option and CDS markets. By comparing the credit spreads implied from the option (IS) and the credit spreads observed in the CDS market, we find significant short-lived price discrepancies between the IS and CDS spreads. These price discrepancies are related to frictions associated with limits to arbitrage, such as asset illiquidity, idiosyncratic risk, information uncertainty, as well as the intermediary funding constraint. We develop a stylized intermediary based asset pricing framework, which can rationalize the empirical findings.

ISBN: 9798209927334Subjects--Topical Terms:

3557916
Funding.

Three Essays on CDS and Market Integration.
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260 1 $a Ann Arbor : $b ProQuest Dissertations & Theses, $c 2021
300 $a 227 p.
500 $a Source: Dissertations Abstracts International, Volume: 83-10, Section: B.
500 $a Advisor: Ericsson, Jan.
502 $a Thesis (Ph.D.)--McGill University (Canada), 2021.
506 $a This item must not be sold to any third party vendors.
520 $a Literature proposes various ways to understand the corporate credit risk using different financial assets. This thesis empirically verifies these practices, by studying the relations between the credit and equity (derivatives) markets, as well as addressing the methodological issue in investigating such relations. The first essay studies methodologies in computing CDS returns. While existing CDS return metrics in the literature are poor proxies for the real CDS return, our novel metric has no less than 99% of the correlation with the real CDS return. Our empirical evidence demonstrates the importance of this metric in various empirical settings, such as evaluating a CDS investment strategy.In the second essay, we examine the predictability between the CDS term structure and equity returns. We find that the information set for the predictability can be significantly improved by incorporating the term structure of CDS spreads. The sign of the predictability is dependent on the shape of the term structure. A structural credit risk framework shows that the term structure contains information on the endogenous default boundary and the asset volatility. This information is tightly related to the equity risk premium. Our work highlights the importance of incorporating the credit spread term structure information in examining the relation between the equity and credit markets.The third essay studies the integration between the option and CDS markets. By comparing the credit spreads implied from the option (IS) and the credit spreads observed in the CDS market, we find significant short-lived price discrepancies between the IS and CDS spreads. These price discrepancies are related to frictions associated with limits to arbitrage, such as asset illiquidity, idiosyncratic risk, information uncertainty, as well as the intermediary funding constraint. We develop a stylized intermediary based asset pricing framework, which can rationalize the empirical findings.
520 $a La litterature propose differentes manieres de comprendre le risque de credit des entreprises en utilisant differents actifs financiers. Cette these verifie empiriquement ces pratiques, en etudiant les relations entre les marches du credit et des actions (produits derives), ainsi qu'en abordant la question methodologique dans l'etude de ces relations. Le premier essai etudie les methodologies de calcul des rendements CDS. Alors que les mesures de rendement CDS existantes dans la litterature sont de mauvais indicateurs du rendement reel des CDS, notre nouvelle mesure n'a pas moins de 99% de la correlation avec le rendement reel des CDS. Nos donnees empiriques demontrent l'importance de cette mesure dans divers contextes empiriques, comme l'evaluation d'une strategie d'investissement CDS.Dans le deuxieme essai, nous examinons la previsibilite entre la structure a terme du CDS et les rendements des actions. Nous constatons que l'ensemble d'informations pour la previsibilite peut etre considerablement ameliore en incorporant la structure a terme des spreads de CDS. Le signe de la previsibilite depend de la forme de la structure a terme. Un cadre de risque de credit structurel montre que la structure a terme contient des informations sur la limite de defaut endogene et la volatilite des actifs. Ces informations sont etroitement liees a la prime du risque des actions. Nos travaux soulignent l'importance d'incorporer les informations sur la structure a terme de ecart de credit dans l'examen de la relation entre les marches des actions et du credit.Le troisieme essai etudie l'integration entre les marches de l'option et des CDS. En comparant les spreads de credit implicites de l'option (IS) et les spreads de credit observes sur le marche des CDS, nous constatons des ecarts de prix de courte duree significatifs entre les spreads IS et CDS. Ces ecarts de prix sont lies aux frictions liees aux limites de l'arbitrage, telles que l'illiquidite des actifs, le risque idiosyncratique, l'incertitude de l'information, ainsi que la contrainte de financement intermediaire. Nous developpons un cadre stylise de valuation des actifs base sur des intermediaires, qui peut rationaliser les resultats empiriques.
590 $a School code: 0781.
650 4 $a Funding. $3 3557916
650 4 $a Numerical analysis. $3 517751
650 4 $a Applied mathematics. $3 2122814
650 4 $a Finance. $3 542899
650 4 $a Mathematics. $3 515831
650 4 $a Political science. $3 528916
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710 2 $a McGill University (Canada). $3 1018122
773 0 $t Dissertations Abstracts International $g 83-10B.
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793 $a English
856 4 0 $u http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=29043262