Advanced Search
MyIDEAS: Login

Credit default swaps and CDS-bond basis with Russian companies: a review and an analysis of the effects of the short selling ban during the second great contraction

Contents:

Author Info

  • Frolova, Elvina

    ()
    (National Research University Higher School of Economics)

  • Fantazzini, Dean

    ()
    (Moscow School of Economics, Moscow State University; National Research University Higher School of Economics)

Abstract

This paper reviews the theory of Credit Default Swaps (CDS), the main characteristics of the CDS market, and how to estimate the non-default component of the yield spreads as the basis between the actual CDS premium and the hypothetical CDS premium implied by bond yields. We then analyze the most liquid CDS on Russian companies and compute the relative CDS-Bond basis from 2005 till 2010, paying particular attention to the period when a short selling ban was into effect in Russian financial markets from September 18, 2008 till June 15, 2009. We found that, while the basis was mainly negative before the ban, it then became largely positive during the period the ban was enforced. After the ban was lifted, the basis has started to decrease but still remains positive for all companies examined. This evidence therefore seems to support the hypothesis that a positive basis can be justified by the difficulty of arbitrage caused by short selling costs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://pe.cemi.rssi.ru/pe_2012_1_03-24.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Article provided by Publishing House "SINERGIA PRESS" in its journal Applied Econometrics.

Volume (Year): 25 (2012)
Issue (Month): 1 ()
Pages: 3-24

as in new window
Handle: RePEc:ris:apltrx:0161

Contact details of provider:
Web page: http://appliedeconometrics.cemi.rssi.ru/

Related research

Keywords: credit; default swaps; basis; short selling; emerging markets; Russian market; credit risk; Russian stocks;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Darrel Duffie & Leandro Saita & Ke Wang, 2005. "Multi-Period Corporate Default Prediction With Stochastic Covariates," CARF F-Series CARF-F-047, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Roberto Blanco & Simon Brennan & Ian W Marsh, 2004. "An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps," Bank of England working papers 211, Bank of England.
  3. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2004. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market," NBER Working Papers 10418, National Bureau of Economic Research, Inc.
  4. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  5. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  6. Kucuk, Ugur N., 2010. "Non-default Component of Sovereign Emerging Market Yield Spreads and its Determinants: Evidence from Credit Default Swap Market," MPRA Paper 27428, University Library of Munich, Germany.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  8. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ris:apltrx:0161. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anatoly Peresetsky).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.