This paper explores common factors determining the cross-section of credit default swaps (CDS) returns. To this end, we compute holding period returns based on the upfront fee. Our method provides a realistic way to study the CDS returns comparable to other assets. Data show that gaps between actual and approximated returns are often substantial. We find that the conventional stock and bond factors have little explanatory power. Instead, CDS skewness and momentum are significant pricing factors to explain the CDS expected returns, and there exist spillover effects from other assets to the CDS market in that zero-cost portfolios sorted by the corresponding stock and bond characteristics can price the cross-section of CDS returns.​

Keywords: Credit Default Swap, Skewness, Momentum
JEL Classification: G12, G14, G24