Liquidity, Liquidity Spillover, and Credit Default Swap Spreads
This paper provides the first empirical study of the effects of liquidity in the credit default swap (CDS) market and liquidity spillover from other markets on CDS spreads. We use three CDS liquidity proxies: total number of quotes and trades, order imbalance, and bid-ask spread. The liquidity effect in the CDS market is more significant than generally believed. We estimate an illiquidity premium of 9.3 basis points in CDS spreads, on par with the Treasury bond liquidity premium and the nondefault component of corporate bond yield spreads. There is significant liquidity spillover from bond, stock and option markets to the CDS market. As the CDS market liquidity improves over time, the liquidity and liquidity spillover effects become weaker in more recent periods. These results provide a new perspective for a better understanding of the CDS markets and previous findings on CDS spreads.
Credit Default Swaps Credit Spreads Liquidity Liquidity Spillover
Dragon Yongjun Tang Hong Yan
Department of Economics and Finance, Coles College of Business, Kennesaw State University, Kennesaw, U.S. Securities & Exchange Commission, Office of Economic Analysis, 100 F Street, N.E., Washington,
国际会议
昆明
英文
1-34
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）