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Are all Credit Default Swap Databases Equal?

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  • Sergio Mayordomo
  • Juan Ignacio Peña
  • Eduardo S. Schwartz

Abstract

The presence of different prices in different databases for the same securities can impair the comparability of research efforts and seriously damage the management decisions based upon such research. In this study we compare the six major sources of corporate Credit Default Swap prices: GFI, Fenics, Reuters EOD, CMA, Markit and JP Morgan, using the most liquid single name 5-year CDS of the components of the leading market indexes, iTraxx (European firms) and CDX (US firms) for the period from 2004 to 2010. We find systematic differences between the data sets implying that deviations from the common trend among prices in the different databases are not purely random but are explained by idiosyncratic factors as well as liquidity, global risk and other trading factors. The lower is the amount of transaction prices available the higher is the deviation among databases. Our results suggest that the CMA database quotes lead the price discovery process in comparison with the quotes provided by other databases. Several robustness tests confirm these results.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16590.

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Date of creation: Dec 2010
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Publication status: published as Mayordomo, S., Pena, J.I. and Schwartz, E.S., “Are all Credit Default Swap Databases Equal?”, European Financial Management, forthcoming. 102. Trolle, A.B. and Schwartz, E.S., “The Swaption Cube”, Review of
Handle: RePEc:nbr:nberwo:16590

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  1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
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  9. Sergio Mayordomo & Juan Ignacio Peña & Juan Romo, 2009. "Are There Arbitrage Opportunities in Credit Derivatives Markets? A New Test and an Application to the Case of CDS and ASPs," Business Economics Working Papers wb096303, Universidad Carlos III, Departamento de Economía de la Empresa.
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Cited by:
  1. Bosma, Jakob & Koetter, Michael & Wedow, Michael, 2012. "Credit risk connectivity in the financial industry and stabilization effects of government bailouts," Discussion Papers 16/2012, Deutsche Bundesbank, Research Centre.
  2. Andrew Atkeson & Andrea L. Eisfeldt & Pierre-Olivier Weill, 2013. "The market for OTC derivatives," Staff Report 479, Federal Reserve Bank of Minneapolis.
  3. Joshua Aizenman & Michael M. Hutchison & Yothin Jinjarak, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," NBER Working Papers 17407, National Bureau of Economic Research, Inc.
  4. Trapp, Monika & Wewel, Claudio, 2012. "Transatlantic systemic risk," CFR Working Papers 12-10, University of Cologne, Centre for Financial Research (CFR).
  5. Avino, Davide & Lazar, Emese, 2012. "Rethinking Capital Structure Arbitrage," MPRA Paper 42850, University Library of Munich, Germany.
  6. Nielsen, Caren Yinxia Guo, 2011. "Is Default Risk Priced in Equity Returns?," Working Papers 2011:38, Lund University, Department of Economics.
  7. Sergio Mayordomo & Juan Ignacio Peña & María Rodríguez-Moreno, 2012. "Liquidity Commonalities in the Corporate CDS Market around the 2007-2012 Financial Crisis," Faculty Working Papers 23/12, School of Economics and Business Administration, University of Navarra.
  8. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4241-4255.
  9. Michele Leonardo Bianchi, 2012. "An empirical comparison of alternative credit default swap pricing models," Temi di discussione (Economic working papers) 882, Bank of Italy, Economic Research and International Relations Area.
  10. Trapp, Monika & Wewel, Claudio, 2013. "Transatlantic systemic risk," CFR Working Papers 12-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
  11. Yinxia G. Nielsen , Caren, 2013. "Is Default Risk Priced in Equity Returns?," Knut Wicksell Working Paper Series 2013/2, Knut Wicksell Centre for Financial Studies, Lund University.
  12. De Bruyckere, Valerie & Gerhardt, Maria & Schepens, Glenn & Vander Vennet, Rudi, 2013. "Bank/sovereign risk spillovers in the European debt crisis," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4793-4809.
  13. Groba, Jonatan & Lafuente, Juan A. & Serrano, Pedro, 2013. "The impact of distressed economies on the EU sovereign market," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2520-2532.
  14. Langkamp, Christian, 2011. "Counterparty credit risk management in industrial corporates," MPRA Paper 34358, University Library of Munich, Germany.
  15. Podlich, Natalia & Wedow, Michael, 2011. "Credit contagion between financial systems," Discussion Paper Series 2: Banking and Financial Studies 2011,15, Deutsche Bundesbank, Research Centre.

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