Abstract

http://ssrn.com/abstract=1942727
 
 

References (20)



 
 

Citations (5)



 


 



CDS Auctions and Informative Biases in CDS Recovery Rates


Sudip Gupta


Indiana University - Kelley School of Business

Rangarajan K. Sundaram


New York University (NYU) - Department of Finance

May 25, 2013


Abstract:     
Introduced in 2005 to identify recovery rates and so facilitate cash settlement in the multi-trillion dollar credit default swap market, credit-event auctions have a novel and complex two-stage structure that makes them distinct from other auction forms. Examining the efficacy of the auction's price-discovery process, we find that the auction price has a significant bias relative to pre- and post-auction market prices for the same instruments, and that volatility of market prices often increases after the auction. Nonetheless, we find that the auction generates information that is critical for post-auction market price formation. Auction outcomes are heavily influenced by strategic considerations and "winner's curse" concerns that could explain the observed biases. Structural estimation of the auction carried out under some simplifying assumptions suggests that alternative auction formats could reduce the bias in the auction final price.

Number of Pages in PDF File: 45

working papers series





Download This Paper

Date posted: October 13, 2011 ; Last revised: July 29, 2013

Suggested Citation

Gupta, Sudip and Sundaram, Rangarajan K., CDS Auctions and Informative Biases in CDS Recovery Rates (May 25, 2013). Available at SSRN: http://ssrn.com/abstract=1942727 or http://dx.doi.org/10.2139/ssrn.1942727

Contact Information

Sudip Gupta (Contact Author)
Indiana University - Kelley School of Business ( email )
1309 East Tenth Street
Indianapolis, IN 47405-1701
United States
Rangarajan K. Sundaram
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 930
Downloads: 152
Download Rank: 72,163
References:  20
Citations:  5

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.282 seconds