The anatomy of the CDS market

Martin Oehmke and Adam Zawadowski

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using novel position and trading data for single-name corporate credit default swaps (CDSs), we provide evidence that CDS markets emerge as "alternative trading venues" that serve a standardization and liquidity role. CDS positions and trading volume are larger for firms with bonds that are fragmented into many separate issues and have heterogeneous contractual terms. Whereas hedging motives are associated with trading volume in the bond and CDS markets, speculative trading concentrates in the CDS. Cross-market arbitrage links the CDS and bond market via the basis trade, impressing the negative CDS-bond basis and reducing price impact in the bond market.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2017-01
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Citations: View citations in EconPapers (58)

Published in Review of Financial Studies, January, 2017, 30(1), pp. 80-119. ISSN: 0893-9454

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http://eprints.lse.ac.uk/66279/ Open access version. (application/pdf)

Related works:
Working Paper: The anatomy of the CDS market (2016)
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