Temporal Effects in Index CDS Trading and Liquidity
45 Pages Posted: 16 Jun 2020 Last revised: 11 Jan 2021
Date Written: May 22, 2020
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: Suggested Citation