Liquidity and Pricing of Credit Default Swaps in Japan: Evidence from a Benchmark Index for Corporate Debt Claims

Kei-Ichiro Inaba ()
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Kei-Ichiro Inaba: Organisation for Economic Co-operation and Development

Journal of Financial Services Research, 2018, vol. 54, issue 1, No 4, 143 pages

Abstract: Abstract This article is a contribution towards the growing empirical literature on the relationship between liquidity and pricing of credit default swaps (CDSs). To the best of my knowledge, the article becomes the first to show that market liquidity does matter to CDS pricing in Japan, by looking into a sole benchmark index of CDS trading for investment-grade debt claims, or the Markit iTraxx Japan (MiJ). The impact of illiquidity on MiJ premia has declined since the International Swaps and Derivatives Association introduced new trade practices in April 2009. The liquidity of the MiJ has increased since the Japan Securities Clearing Corporation started operating as a central counterpart for the MiJ in July 2011. The price discovery ability of the MiJ has also increased since then.

Keywords: Credit default swap; Liquidity and asset pricing; Credit risk pricing; Price discovery (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10693-016-0241-6

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