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The Direct Relevance of Accounting Information for Credit Default Swap Pricing
Author(s) -
Batta George
Publication year - 2011
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2011.02264.x
Subject(s) - credit default swap , explanatory power , accounting information system , relevance (law) , itraxx , economics , accounting , credit default swap index , swap (finance) , credit risk , business , credit valuation adjustment , econometrics , actuarial science , finance , credit reference , philosophy , epistemology , political science , law
Abstract: This paper examines the direct relevance of accounting information for credit default swap (CDS) pricing. Prior research on the impact of accounting information for CDS pricing has neglected to include either the output of theoretical CDS pricing models or credit ratings, both of which should impound credit relevant accounting information. Both in‐ and out‐of‐sample testing results suggest that accounting information's explanatory power for CDS prices is significantly diminished when this additional information is included in regression models. Empirical findings suggest a larger indirect role for accounting information in pricing CDS’, which play an important role in credit risk price discovery.