The liquidity premium in CDS transaction prices: Do frictions matter?

Gehde-Trapp, Monika; Gündüzc, Yalin und Nasev, Julia (Dezember 2015): The liquidity premium in CDS transaction prices: Do frictions matter? In: Journal of Banking and Finance, Bd. 61: S. 184-205

Abstract

Based on individual CDS transactions cleared by the Depository Trust & Clearing Corporation, we show that illiquidity strongly affects credit default swap premiums. We identify the following effects: first, transaction direction affects prices, as buy (sell) orders lead to premium increases (decreases). Second, larger transactions have a higher price impact. This finding stands in stark contrast to corporate bond markets. Third, traders charge higher premiums as a price for liquidity provision, not as compensation for asymmetric information. Fourth, buy-side investors pay significantly higher prices than dealers for demanding liquidity. Finally, inventory risk seems to matter little in explaining liquidity premiums.

• Dokumententyp: Zeitschriftenartikel
• Keywords: CDS; Illiquidity; Temporary price impact; Market power; Immediacy; DTCC
• Fakultät: Betriebswirtschaft
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• ISSN: 1872-6372 ; 0378-4266
• Sprache: Englisch