Journal
EXPERT SYSTEMS WITH APPLICATIONS
Volume 194, Issue -, Pages -Publisher
PERGAMON-ELSEVIER SCIENCE LTD
DOI: 10.1016/j.eswa.2022.116553
Keywords
CDS spreads; SVM; GMDH; LSTM; Markov switching autoregression; Covid-19
Categories
Funding
- Russian Science Foundation [22-28-01553]
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This paper investigates the forecasting performance of different methods for credit default swap spreads. The results show that MSA method performs the best and GMDH method breaks the efficient market hypothesis most frequently. The study also finds that the market efficiency decreases during the Covid-19 period, but there are no significant differences in prediction performances before and during the pandemic.
This paper investigates the forecasting performance for credit default swap (CDS) spreads by Support Vector Machines (SVM), Group Method of Data Handling (GMDH), Long Short-Term Memory (LSTM) and Markov switching autoregression (MSA) for daily CDS spreads of the 513 leading US companies, in the period 2009-2020. The goal of this study is to test the forecasting performance of these methods before and during the Covid-19 pandemic and to check whether there are changes in the market efficiency. MSA outperforms all other methods most frequently. GMDH breaks the efficient market hypothesis more frequently (75%) than other methods. The change of the relative predictability during Covid-19 is small with some increase of the advantage of the investigated methods over a benchmark. We find that the market has been less efficient during Covid-19, however, there are no huge differences in prediction performances before and during the Covid-19 period.
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