The Effects of Liquidity on the Price Discovery Process in Credit Derivatives Markets in Times of Financial Distress

Sergio Mayordomo, Juan Ignacio Peña and Juan Romo

CNMV Working Papers from CNMV- Spanish Securities Markets Commission - Research and Statistics Department

Abstract: CONTENTS: This paper analyses the role of liquidity in the price discovery process. Specifically, it focuses on the credit derivatives markets in the context of the subprime crisis. It presents a theoretical price discovery model for the ASP, bond and CDS markets and then it tests the model with data from 2005 to 2009 on Euro-denominated non-financial firms. The empirical results show that the ASP market clearly leads the bond market in the price discovery process in all cases, while the leadership between ASPs and CDSs is very sensitive to the appearence of the subprime crisis. Before the crisis the CDS market leads the ASP market but during the crisis the ASP market leads the CDS market.

Keywords: Price Discovery; VECM; Credit Derivatives; Credit Spreads. (search for similar items in EconPapers)
JEL-codes: C32 C51 G13 G14 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cnmv.es/DocPortal/Publicaciones/MONOGRAFIAS/MonografiaN41_weben.pdf (application/pdf)

Related works:
Journal Article: The effect of liquidity on the price discovery process in credit derivatives markets in times of financial distress (2011)
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:cnv:wpaper:dt_41en

Ordering information: This working paper can be ordered from
Dpto. de Estudios y Estadísticas Comisión Nacional del Mercado de Valores Edison, 4 28006 Madrid, Spain

Access Statistics for this paper

More papers in CNMV Working Papers from CNMV- Spanish Securities Markets Commission - Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Jose María Moreno ().