An Empirical Study on Credit Default Swap Spreads in Taiwan
by
Tsai-Lin, Liao, Hsin-Yi Hung and Min-Teh Yu*
December, 31, 2008
Abstract
This study investigates empirically the determinants of the credit default swap spreads
(CDS spreads) in Taiwan. The CDS spreads transaction data that cover the period from
July1, 2001 to October 31, 2008 were provided by Far Eastern International Bank. We
document that the majority of variables, detected from the credit risk pricing theories,
explain more than 44.7% of total level of CDS spreads. Our regression results indicate that
credit rating, leverage, equity volatility, issue size, industry type (electronic and financial)
are all significant determinants of CDS spreads, while maturity, risk-free interest rate, new
or old issue, market condition (stock index level) and market measures of systematic risk
are insignificant.
Keywords：credit default swap spreads, credit risk, credit rating, systematic risk
*
Department of Finance, Providence University, Taichung 43301, Taiwan. Corresponding author: Yu:
Department of Finance, Providence University, Taichung 43301, Taiwan. Tel.: 886-4-26310631, Fax:
886-4-26311170, Email: mtyu@pu.edu.tw. The authors acknowledge the funding support provided by the
National Science Council, Taiwan.