DOES THE SUBPRIME CRISIS AFFECT CREDIT DEFAULT SWAP MARKETS?

This paper investigates the impact of the Subprime crisis on the Credit Default Swap (CDS) market. The Subprime crisis presents a serious risk to global financial markets. The Japanese credit markets faces growing bank losses and a cruel market environment accompanied by a slowing economy and fluctuant equity prices. Using a daily dataset from the Japanese market covering the period from July 2007 to November 2008, we analyse the trends of CDS spread changes. We find that the CDS market has experienced a dramatic change since March 2008 and then CDS Spreads changes are regime dependent.