Financial oligopolies and parallel exclusion in the credit default swap markets
Lawrence Kryzanowski,
Stylianos Perrakis () and
Rui Zhong ()
Journal of Financial Markets, 2021, vol. 56, issue C
Abstract:
Motivated by a recent antitrust case in the credit default swap (CDS) market defined as “parallel exclusion”, we formulate an oligopoly model of simultaneous trading by dealers in the CDS and loan CDS (LCDS) markets. We show that in equilibrium it is optimal for incumbent dealers to take suitably designed opposite positions in the two markets. Limiting information to incumbents constitutes a barrier to entry and preserves the intermarket arbitrage profits even in the absence of collusion. We use all mature contract pairs and document very large and virtually riskless profits. Extensive empirical tests support our model over competing explanations.
Keywords: Oligopolies; Market structure; Barriers to entry; (Loan) credit default swaps; Limits to arbitrage (search for similar items in EconPapers)
JEL-codes: G01 G13 G14 G3 L13 L14 L16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418120300756
Full text for ScienceDirect subscribers only
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:eee:finmar:v:56:y:2021:i:c:s1386418120300756
DOI: 10.1016/j.finmar.2020.100606
Access Statistics for this article
Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam
More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().