Corporate CDS Pricing Post the Financial Crisis.

When we use models estimated pre-2009 to examine CDS pricing post 2010, we find that the models underpredict each year during 2010–2018. This is most likely due to several regulation and non-regulation changes that significantly increased the cost of market intermediaries during this period, such as the margin requirements and Basel accord. The R-squared declined substantially after 2018, indicating that there was in general more noise in the CDS market post 2018, and we still observe CDS over-pricing among mid-sized firms post 2018. Finally, when the COVID pandemic hit the United States in March 2020, we observe large swings in both regression intercepts and regression R-squared, pointing toward disruptions, particularly in the CDS market among small and mid-sized firms but not large firms. We conclude that a large fraction of CDS prices post 2010 might not be related to credit risks even at the aggregate level, suggesting a possible structural change in CDS pricing. [ABSTRACT FROM AUTHOR]