The impact of CDS trading on the bond market: evidence from Asia

Ilhyock Shim and Haibin Zhu

No 332, BIS Working Papers from Bank for International Settlements

Abstract: This paper investigates the impact of CDS trading on the development of the bond market in Asia. In general, CDS trading has lowered the cost of issuing bonds and enhanced the liquidity in the bond market. The positive impact is stronger for smaller firms, non-financial firms and those firms with higher liquidity in the CDS market. These empirical findings support the diversification and information hypotheses in the literature. Nevertheless, CDS trading has also introduced a new source of risk. There is strong evidence that, at the peak of the recent global financial crisis, those firms included in CDS indices faced higher bond yield spreads than those not included.

Keywords: credit default swaps; bond spreads; bond liquidity; CDS index; Asia (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-12
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-mst and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The impact of CDS trading on the bond market: Evidence from Asia (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:332

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