Standardization, transparency initiatives, and liquidity in the CDS market

Laurence Daures and Andras Fulop

Journal of Financial Markets, 2022, vol. 59, issue PA

Abstract: We investigate liquidity changes in the credit default swap (CDS) market around two events that increased market transparency and standardization during the Great Financial Crisis: the dissemination of CDS positions starting in November 2008, and the implementation of the Small Bang in July 2009. We build an econometric model based on bid and ask quotes to measure liquidity in thinly traded CDSs. We find that, after the release of CDS positions, the market-wide deterioration in liquidity is less important for banks, consistent with information revelation alleviating systemic risk uncertainty. The Small Bang also improved liquidity, particularly for more illiquid CDSs.

Keywords: Credit default swap; Liquidity; Transparency; Small bang; Counterparty risk (search for similar items in EconPapers)
JEL-codes: C51 G14 G18 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:59:y:2022:i:pa:s1386418122000106

DOI: 10.1016/j.finmar.2022.100718

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