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The Influence of Political Risk on CDS Spreads - Differences between banks and other large firms

Tingåker, Ludvig LU and Bengtsson, Johan LU (2017) NEKN02 20171
Department of Economics
Abstract (Swedish)
This thesis investigates the influence of country-specific political risk on credit default swap spreads. The research includes a sample of 30 companies over a time period of more than 13 years. The companies are divided into two sets of sub-groups, dependent on whether they are banks or not and which country they are based in. The hypothesis is that banks should be more influenced by political risk than non-banks, due to bail-out commitments from the government. Further, we investigate if there are any tendencies towards a difference in significance of political risk on CDS spreads between high and low-risk countries. The results from our regressions show lack of statistical significance to support our initial hypothesis. We believe that... (More)
This thesis investigates the influence of country-specific political risk on credit default swap spreads. The research includes a sample of 30 companies over a time period of more than 13 years. The companies are divided into two sets of sub-groups, dependent on whether they are banks or not and which country they are based in. The hypothesis is that banks should be more influenced by political risk than non-banks, due to bail-out commitments from the government. Further, we investigate if there are any tendencies towards a difference in significance of political risk on CDS spreads between high and low-risk countries. The results from our regressions show lack of statistical significance to support our initial hypothesis. We believe that this may be partly due to insufficient data for the political risk proxies, which tend to be either infrequent or irrelevant. However, we observe some tendencies that support our hypothesis when investigating the sign and values of the beta-coefficients, as well as when lagging the political risk measurement forward. (Less)
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author
Tingåker, Ludvig LU and Bengtsson, Johan LU
supervisor
organization
course
NEKN02 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
credit default swaps, political risk, credit risk, banks, Merton model
language
English
id
8913799
date added to LUP
2017-06-13 15:18:06
date last changed
2017-06-13 15:18:06
@misc{8913799,
  abstract     = {This thesis investigates the influence of country-specific political risk on credit default swap spreads. The research includes a sample of 30 companies over a time period of more than 13 years. The companies are divided into two sets of sub-groups, dependent on whether they are banks or not and which country they are based in. The hypothesis is that banks should be more influenced by political risk than non-banks, due to bail-out commitments from the government. Further, we investigate if there are any tendencies towards a difference in significance of political risk on CDS spreads between high and low-risk countries. The results from our regressions show lack of statistical significance to support our initial hypothesis. We believe that this may be partly due to insufficient data for the political risk proxies, which tend to be either infrequent or irrelevant. However, we observe some tendencies that support our hypothesis when investigating the sign and values of the beta-coefficients, as well as when lagging the political risk measurement forward.},
  author       = {Tingåker, Ludvig and Bengtsson, Johan},
  keyword      = {credit default swaps,political risk,credit risk,banks,Merton model},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Influence of Political Risk on CDS Spreads - Differences between banks and other large firms},
  year         = {2017},
}