Credit default swaps reveal hidden risks impacting interest rates and liquidity.
The article explores how different risks like interest rates, credit, and liquidity affect credit default swap spreads. By analyzing a large dataset, the researchers found that companies in various industries and credit ratings have unique credit-risk dynamics. They discovered that interest rates impact credit spreads and influence future credit-risk movements. Additionally, companies with high liquidity have higher credit default swap spreads compared to those with low liquidity, due to differences in credit risk and liquidity factors.