Debt market illiquidity and correlated default risk
Siamak Javadi and
Finance Research Letters, 2018, vol. 26, issue C, 266-273
We empirically test the theoretical prediction of the impact of debt market liquidity on correlated default risk. Confirming the theory, our results indicate that the lower debt market liquidity, leads to an economically significant increase in the correlated default risk. Also consistent with theory, we show that this effect is more pronounced for short-term debt.
Keywords: Default correlation; Debt market liquidity; Credit default swap (Cds); Debt maturity; Correlation in default probabilities (search for similar items in EconPapers)
JEL-codes: G01 G12 G13 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:26:y:2018:i:c:p:266-273
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