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

  • Ilhyock Shim
  • Haibin Zhu

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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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 332.

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Length: 44 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:bis:biswps:332
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