Temporal Effects in Index CDS Trading and Liquidity

45 Pages Posted: 16 Jun 2020 Last revised: 11 Jan 2021

See all articles by Weike Xu

Weike Xu

Clemson University - Department of Finance

Xinjie Wang

Southern University of Science and Technology

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: May 22, 2020

Abstract

Using high-frequency intraday trading and quoting data, we study the temporal effects in index credit default swap (CDS) trading and liquidity. We find strong intraday variations in index CDS trading activities and liquidity. Unlike the U-shaped trading pattern in the equity market, index CDSs exhibit a hump-shaped intraday trading pattern. Trading costs and return volatility are substantially lower in active trading hours, indicating that investors tend to trade when trading costs and price informativeness are low. We also observe strong day-of-the-week effects. Overall, these findings improve our understanding of the trading costs and liquidity in the over-the-counter derivatives market.

Keywords: index CDSs, intraday pattern, interday pattern, trading cost, liquidity

JEL Classification: G12, G13, G14

Suggested Citation

Xu, Weike and Wang, Xinjie and Zhong, Zhaodong, Temporal Effects in Index CDS Trading and Liquidity (May 22, 2020). Available at SSRN: https://ssrn.com/abstract=3607660 or http://dx.doi.org/10.2139/ssrn.3607660

Weike Xu

Clemson University - Department of Finance ( email )

425 Sirrine Hall
Clemson, SC 29634
United States

Xinjie Wang

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Zhaodong Zhong (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

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