The Impact of Major Events from the Recent Financial
Crisis on Credit Default Swaps

Abstract

This study explores the impact of key events from the recent financial crisis on credit default swaps (CDS). We show that shocks from the CDS spread significantly coincide with major credit events, and the magnitudes of shocks are greater for negative events than for positive events. The CDS spreads of the financial industry jump prior to the occurrence of events. In the beginning of the crisis, competitive effects for the nonfinancial industry are present, and when the series of credit events continues, such competitive effects turn into contagion effects. The impact levels of the effects vary across sample firms with different industrial characteristics.