Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114467
Authors: 
Gehde-Trapp, Monika
Gündüz, Yalin
Nasev, Julia
Year of Publication: 
2015
Series/Report no.: 
CFR Working Paper 12-12 [rev.2]
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, buyside investors pay significantly higher prices than dealers for demanding liquidity. Last, inventory risk seems to matter little in explaining liquidity premiums.
Subjects: 
CDS
illiquidity
temporary price impact
market power
immediacy
DTCC
JEL: 
G12
G14
Document Type: 
Working Paper

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