Is there a case for banning short speculation in sovereign bond markets?

Darrell Duffie

Financial Stability Review, 2010, issue 14, 55-59

Abstract: I address whether speculation in credit default swaps is likely to have driven up Eurozone sovereign borrowing costs. I provide empirical evidence, based on research in progress with Zhipeng Zhang, that this is not the case. I also describe the role of speculators in credit default swap markets. I discuss how regulations that severely restrict speculation in credit default swap markets could have the unintended consequences of reducing market liquidity, raising trading execution costs for investors who are not speculating, and lowering the quality of information provided by credit default swap rates regarding the credit qualities of sovereign issuers. Regulations that severely restrict speculation in credit default swap markets could, as a result, increase sovereign borrowing costs. I briefl y suggest alternative regulatory approaches.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... eview-14_2010-07.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:fisrev:2010:14:7

Access Statistics for this article

More articles in Financial Stability Review from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().