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The impact of CDS trading on the bond market: Evidence from Asia

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  • Shim, Ilhyock
  • Zhu, Haibin
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    Abstract

    This paper investigates the impact of CDS trading on the development of the bond market in Asia. In general, CDS trading has lowered the cost of issuing bonds and enhanced the liquidity in the bond market. The positive impact is stronger for smaller firms, non-financial firms and those firms with higher liquidity in the CDS market. These empirical findings support the diversification and information hypotheses in the literature. Nevertheless, CDS trading has also introduced a new source of risk. There is strong evidence that, at the peak of the recent global financial crisis, those firms included in CDS indices faced higher bond yield spreads than those not included.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613002719
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 40 (2014)
    Issue (Month): C ()
    Pages: 460-475

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    Handle: RePEc:eee:jbfina:v:40:y:2014:i:c:p:460-475

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Credit default swaps; Bond spreads; Bond liquidity; CDS index; Asia;

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