The impact of central clearing on the market for single-name credit default swaps

Mohamed-Ali Akari, Ramzi Ben-Abdallah, Michèle Breton and Georges Dionne ()

The North American Journal of Economics and Finance, 2021, vol. 56, issue C

Abstract: In this article, we revisit the impact of the voluntary central clearing scheme on the CDS market. In order to address the endogeneity problem, we use a robust methodology that relies on dynamic propensity-score matching combined with generalized difference-in-differences. Our empirical findings show that central clearing results in a small increase in CDS spreads (ranging from 14 to 19 bps), while there is no evidence of an associated improvement in CDS market liquidity and trading activity or of a deterioration in the default risk of the underlying bond. These results suggest that the increase in CDS spreads can be mainly attributed to a reduction in CDS counterparty risk.

Keywords: Credit default swaps; Central clearing; Counterparty risk; Liquidity; Trading activity; Bond default spread; Difference-in-differences; Parallel trend (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G18 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The impact of central clearing on the market for single-name credit default swaps (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:56:y:2021:i:c:s106294082030231x

DOI: 10.1016/j.najef.2020.101346

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