Determinants of Credit Default Swap Spread: Evidence from the Japanese Credit Derivative Market Comments by Carl R. Chen  The authors study the determinants of credit default swap spread using Japanese data set containing 106 firms from January 2001 to December  Leverage and volatility (implied or historical ?) are positively related to the CDS spread, while risk-free rate is negatively related.  The effects are larger for lower credit firms.

 Since similar models focusing on US and European data have been studied, stronger motivation is needed.  Statistics emphasizing the importance of Japanese credit default swap market can be provided.  Why stop in 2004? In the wake of recent financial crisis, the development in the CDS after 2007 is of more interest.  Can you plot the CDS spread over time? It may give some information regarding structure changes  Partitioning the sample into two subperiods of equal time-series observation is ad hoc. Internet bubbles extend from 2001 to 2003/09. Again, a plot of the CDS spread is helpful for preliminary analysis. Handerson (2001) and/or Bai-Perron (2002) provide more rigorous tests for regime shift.

 Volatility is found to be negatively related to CDS spread for the financial industry. This is counter theory and counter intuition. Possible explanations need to be tried.  Alternative volatility can be measured, e.g., GARCH process  Liquidity risk may be as important as other variables; attempts can be made to incorporate such risk  Use SUR model for Table 3 (high & low credit); test parameter equality  Update Ericsson et al. The reference shows that the article is “forthcoming” in 2005