Dealing with dealers: sovereign CDS comovements

Miguel Antón (), Sergio Mayordomo and Maria Rodriguez-Moreno
Additional contact information
Miguel Antón: IESE BUSINESS SCHOOL

No 1723, Working Papers from Banco de España

Abstract: We show that sovereign CDS that have common dealers tend to be more correlated, especially when the dealers display similar quoting activity in those contracts over time. This commonality in dealers’ activity is a powerful driver of CDS comovements, over and above fundamental similarities between countries, including default, liquidity, and macro factors. We posit that the mechanism causing the excess correlation is the buying pressure faced by CDS dealers for credit enhancements and regulatory capital reliefs. An instrumental variable analysis confirms that our findings are indeed rooted in a causal relationship.

Keywords: sovereign CDS; comovements; commonalities; dealers (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ban and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /17/Fich/dt1723e.pdf First version, July 2017 (application/pdf)

Related works:
Journal Article: Dealing with dealers: Sovereign CDS comovements (2018)
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:bde:wpaper:1723

Access Statistics for this paper

More papers in Working Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().