Credit default swapsa relevant researchers tool and global risk proxy

Abstract

The purpose of this thesis is to contribute to the analysis of financial threats in a global context. In addition, it helps fill in some gaps regarding current financial risks through the use of a significant tool: the Credit Default Swap (CDS). Thus, the first part is a state-of-the-art section in which the CDSs are introduced as well as their evolution. A 15-year bibliometric analysis of the various types of financial risks studied in the context of the CDS is carried out. From this exhaustive bibliographical search, a conceptual map is proposed to chronologically analyze the various permutations of the CDS. By accounting all of the relevant acceptations displayed in the literature, we detail the major items that have resulted in milestones in how we understand financial risks. The second part is driven by empirical analysis. First, it addresses the importance of CDS markets beyond disputes over their use and distinguishes the nature, power and value of this product. Thus, in the threshold of a new deregulation era, we contribute to the revelation of the CDS market as a variable of scientific interest when analyzing the negotiation, publication and regulation processes of these instruments. In this context, the level of publication activity is estimated by applying textual analysis. To our knowledge, this is the first study that uses textual analysis beyond the framework of event studies. Finally, after accepting the relevance and usefulness of the CDS market, we propose a simple method to analyze global credit risk by using CDS spreads of multinational companies. By doing so, we deepen in current risks in a global and complex context where companies, countries and markets are connected with the rest of the world economy. This is crucial to become aware of the implications of a globalized world and to be able to suggest suitable instruments to face such threats. We use principal components analysis to evidence the common factors that drive changes in the world largest companies CDS spreads with a geographically very heterogeneous income sources. We also check the results of the Granger causality test to discover the statistically significant relationships between these multinational companies and within an intrasectoral framework. Additionally, we evaluate the relevance of the global sectors in terms of predictive causality and the relationship between global credit risk and market risk. Finally, we use the portfolio of global firms to propose a new methodology for investments diversification in a context of global credit risk.