The anatomy of the CDS market

Martin Oehmke; Adam Zawadowski

doi:10.1093/rfs/hhw068

The anatomy of the CDS market

Martin Oehmke^*, Adam Zawadowski

^*Corresponding author for this work

London School of Economics and Political Science

Research output: Contribution to journal › Article › peer-review

Abstract (may include machine translation)

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" serving a standardization and liquidity role. CDS positions and trading volume are larger for firms with bonds fragmented into many separate issues and with 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.

Original language	English
Pages (from-to)	80-119
Number of pages	40
Journal	Review of Financial Studies
Volume	30
Issue number	1
DOIs	https://doi.org/10.1093/rfs/hhw068
State	Published - Jan 2017

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The anatomy of the CDS market

Abstract (may include machine translation)

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