Gehde-Trapp, Monika, Guenduez, Yalin and Nasev, Julia (2015). The liquidity premium in CDS transaction prices: Do frictions matter? J. Bank Financ., 61. S. 184 - 206. AMSTERDAM: ELSEVIER. ISSN 1872-6372

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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. (C) 2015 Elsevier B.V. All rights reserved.

Item Type: Journal Article
Creators:
CreatorsEmailORCIDORCID Put Code
Gehde-Trapp, MonikaUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Guenduez, YalinUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Nasev, JuliaUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
URN: urn:nbn:de:hbz:38-384505
DOI: 10.1016/j.jbankfin.2015.08.024
Journal or Publication Title: J. Bank Financ.
Volume: 61
Page Range: S. 184 - 206
Date: 2015
Publisher: ELSEVIER
Place of Publication: AMSTERDAM
ISSN: 1872-6372
Language: English
Faculty: Unspecified
Divisions: Unspecified
Subjects: no entry
Uncontrolled Keywords:
KeywordsLanguage
CREDIT DEFAULT SWAP; STOCK MARKETS; INFORMATION; IMPACT; RISK; BOND; DISCOVERY; SPREADS; TIMEMultiple languages
Business, Finance; EconomicsMultiple languages
URI: http://kups.ub.uni-koeln.de/id/eprint/38450

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