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http://ssrn.com/abstract=1785750
 
 

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Endogenous Liquidity in Credit Derivatives


Jiaping Qiu


McMaster University - Michael G. DeGroote School of Business

Fan Yu


Claremont McKenna College - Robert Day School of Economics and Finance

March 14, 2011

AFA 2012 Chicago Meetings Paper

Abstract:     
We study the determination of liquidity provision as measured by the number of distinct dealers providing quotes in the single-name credit default swap (CDS) market. Cross-sectionally, liquidity is concentrated among large obligors and those near the investment-grade/speculative-grade cutoff. Consistent with endogenous liquidity provision by informed financial institutions, more liquidity is associated with obligors for which there is a greater information flow from the CDS market to the stock market ahead of major credit events. Furthermore, the level of information heterogeneity plays a prominent role in how liquidity provision responds to transaction demand and how liquidity is priced into the CDS premium.

Number of Pages in PDF File: 47

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Date posted: March 15, 2011  

Suggested Citation

Qiu, Jiaping and Yu, Fan, Endogenous Liquidity in Credit Derivatives (March 14, 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1785750 or http://dx.doi.org/10.2139/ssrn.1785750

Contact Information

Jiaping Qiu
McMaster University - Michael G. DeGroote School of Business ( email )
1280 Main Street West
Hamilton, L8S 4M4 Ontario
Canada
Fan Yu (Contact Author)
Claremont McKenna College - Robert Day School of Economics and Finance ( email )
500 E. Ninth St.
Claremont, CA 91711-6420
United States
(909)607-3345 (Phone)
HOME PAGE: http://www.cmc.edu/academic/faculty/profile.asp?Fac=553
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