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The anatomy of the CDS market

Oehmke, Martin and Zawadowski, Adam (2016) The anatomy of the CDS market. Financial Markets Group Discussion Papers (761). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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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, compressing the negative CDS-bond basis and reducing price impact in the bond market.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2016 The Authors
Divisions: Finance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G10 - General
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
Date Deposited: 31 May 2023 14:30
Last Modified: 16 Sep 2023 00:01

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