Credit Default Swaps, Fire-Sale Risk, and the Liquidity Provision in the Bond Market
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 1963–1996 |
| Journal / Publication | Journal of Financial and Quantitative Analysis |
| Volume | 59 |
| Issue number | 4 |
| Online published | 29 Jun 2023 |
| Publication status | Published - Jun 2024 |
Link(s)
Abstract
We study the effect of credit default swaps (CDSs) on the bond market. Using a comprehensive sample of U.S. corporate bonds, we document that the presence of CDSs significantly increases bond liquidity and reduces yield spreads for investment grade bonds. We show that CDSs influence the bond market by lowering the impact of fire sales of institutional bondholders and facilitating inventory management for bond dealers who absorb fire sale shocks. However, the liquidity provision role of CDSs gets weakened after the CDS Big Bang in 2009, potentially because of the requirement of large upfront payments. © THE AUTHOR(S), 2023.
Citation Format(s)
Credit Default Swaps, Fire-Sale Risk, and the Liquidity Provision in the Bond Market. / Massa, Massimo; Zhang, Lei.
In: Journal of Financial and Quantitative Analysis, Vol. 59, No. 4, 06.2024, p. 1963–1996.
In: Journal of Financial and Quantitative Analysis, Vol. 59, No. 4, 06.2024, p. 1963–1996.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
