Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107842
Authors: 
Wojtowicz, Marcin
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-138/IV/DSF82
Abstract: 
We investigate the determinants of bid-ask spreads on corporate credit default swaps (CDSs). We find that proxies for dealer inventory costs such as variability of CDS premia and CDS trading volume explain as much as 80% of variation in CDS bid-ask spreads. We also analyze the influence of variables capturing systematic risk of reference entities, market-implied volatility, dealer funding costs and competition between dealers. Several of these variables are significant, but their explanatory power is moderate. Finally, we demonstrate that CDS bid-ask spreads do not widen preceding earnings announcement surprises, which suggests that private information does not hinder CDS liquidity.
Subjects: 
Credit default swaps
Liquidity
Bid-ask spreads
Components of bid-ask spreads
JEL: 
G10
G14
G19
Document Type: 
Working Paper

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