In this paper, I investigate the development and determinants of CDS spreads for 18 major European banks between December 2001 and January 2004 using daily data. I demonstrate that two nonstationary common factors can be extracted from the data that together explain most CDS spread variation...

A structural break is viewed as a permanent change in the parameter vector of a model. Using taxonomies of all sources of forecast errors for both conditional mean and conditional variance processes, we consider the impacts of breaks and their relevance in forecasting models: (a) where the...