TY  - JOUR
AB  - Purpose The creditworthiness of corporates is most visible in credit ratings. This paper aims to present an alternative credit rating measure independently of credit rating agencies. The credit rating score (CRS) is based on the credit default swap (CDS) market trading.Design/methodology/approach A CRS is developed which is a linear function of logarithmized CDS spreads. This new CRS is the first one that is completely independent of the rating agency. The estimated ratings are compared with ratings provided by Fitch Ratings for 310 European and US non-financial corporates.Findings The empirical analysis shows that logarithmized CDS spreads and issuer credit ratings by agencies have a linear relationship. The new CRS provides market participants with an alternative risk assessment, which is solely based on market factors, and does not rely on credit rating analysts. The results indicate that our CRS is able to anticipate agency ratings in advance. Moreover, the analysis shows that the trading volume has only a limited influence in the anticipation of rating changes.Originality/value This study shows a new approach to measure the creditworthiness of firms by analyzing CDS spreads. This is highly relevant for regulation, firm monitoring and investors.
VL  - 18
IS  - 2
SN  - 1526-5943
DO  - 10.1108/JRF-09-2016-0119
UR  - https://doi.org/10.1108/JRF-09-2016-0119
AU  - Kiesel Florian
AU  - Spohnholtz Jonathan
PY  - 2017
Y1  - 2017/01/01
TI  - CDS spreads as an independent measure of credit risk
T2  - The Journal of Risk Finance
PB  - Emerald Publishing Limited
SP  - 122
EP  - 144
Y2  - 2024/04/25
ER  -