The Impact of CDS Trading on the Bond Market: Evidence from Asia

42 Pages Posted: 4 Aug 2010 Last revised: 17 Nov 2010

See all articles by Ilhyock Shim

Ilhyock Shim

Bank for International Settlements (BIS)

Haibin Zhu

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2010

Abstract

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.

Keywords: Credit default swaps, bond spreads, bond liquidity, CDS index, Asia

JEL Classification: G12, G32

Suggested Citation

Shim, Ilhyock and Zhu, Haibin, The Impact of CDS Trading on the Bond Market: Evidence from Asia (May 30, 2010). Available at SSRN: https://ssrn.com/abstract=1652654 or http://dx.doi.org/10.2139/ssrn.1652654

Ilhyock Shim

Bank for International Settlements (BIS) ( email )

78F, Two International Finance Centre
8 Finance Street, Central
Hong Kong, n/a n/a
Hong Kong

HOME PAGE: http://www.bis.org/author/ilhyock_shim.htm

Haibin Zhu (Contact Author)

Bank for International Settlements (BIS) ( email )

Hong Kong
Hong Kong
852 2878 7145 (Phone)
852 2878 7123 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
129
Abstract Views
915
rank
156,720
PlumX Metrics