Media content and credit risk: empirical analyses based on credit default swap market

Abstract

This thesis aims to explore the impact of media content on credit risk by using the Credit Default Swap (CDS) and to investigate the Chinese real estate market. Chapter 1 provides the motivation and a detailed summary of this thesis. Chapter 2 focuses on the impact of government bailout news on systemic risk during the European sovereign debt crisis. A market-based systemic risk measure is proposed. The empirical results suggest that crisis interventions conducted by the European Central Bank (ECB) help to stabilise the financial and sovereign sectors, and the bailout actions from the International Monetary Fund (IMF) have a dominant effect on the non-financial sector. Chapter 3 explores the impact of media content on sovereign credit risk by using a news sentiment variable from the Thomson Reuters News Analytics database. The results show that such media tone contains both noise and new information, and has a significant influence on the sovereign CDS returns. Chapter 4 studies the impact of news sentiment on a firm’s credit and equity risks. A firm-specific news sentiment is constructed via performing the linguistic analysis on news articles published by the Wall Street Journal. The equity market shows consistent superior reactions to the media sentiment. Furthermore, the impact of media content concentrates on the U.S. financial crisis period. The empirical findings support explanations related to the investor inattention theory. Chapter 5 shifts the focus to the Chinese real estate market and examines the relationship between credit supply and house prices. The financial deregulation process of China in opening up its local currency business to foreign banks is used to identify the impact of foreign credit. This deregulation expands the household credit supply and increases house prices. Meanwhile, provinces with higher participation rates of foreign banks experience larger house price depreciations during the financial crisis.