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...

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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
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creator Caliendo, Frank N.
description 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.
doi_str_mv 10.1016/j.econlet.2018.10.029
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ispartof Economics letters, 2019-01, Vol.174, p.52-54
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1873-7374
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source International Bibliography of the Social Sciences (IBSS); ScienceDirect Journals
subjects Asset pricing
Bond markets
CDS
Credit default swaps
Economic models
Interest rates
Prices
Trading
title CDS trading and bond interest rates
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