CDS trading and bond interest rates

What is the effect of CDS trading on the bond market? I develop a simple asset pricing model of efficient bond and CDS markets that rationalizes the empirical findings in Ashcraft and Santos (2009) and Subrahmanyam et al. (2014). •I study the effect of CDS trading on the bond market.•I assume bond a...

Full description

Saved in:
Bibliographic Details
Published in:Economics letters 2019-01, Vol.174, p.52-54
Main Author: Caliendo, Frank N.
Format: Article
Language:English
Subjects:
Asset pricing
Bond markets
CDS
Credit default swaps
Economic models
Interest rates
Prices
Trading
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:What is the effect of CDS trading on the bond market? I develop a simple asset pricing model of efficient bond and CDS markets that rationalizes the empirical findings in Ashcraft and Santos (2009) and Subrahmanyam et al. (2014). •I study the effect of CDS trading on the bond market.•I assume bond and CDS markets price default risk efficiently.•I examine conditions under which CDS trading has no effect on interest rates.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2018.10.029