University of Sussex
Browse
__smbhome.uscs.susx.ac.uk_tjk30_Documents_CMCDS_JBF2015.pdf (385.01 kB)

Trading strategies with implied forward credit default swap spreads

Download (385.01 kB)
journal contribution
posted on 2023-06-09, 20:22 authored by Arturo Leccadito, Radu TunaruRadu Tunaru, Giovanni Urga
Credit default risk for an obligor can be hedged with either a credit default swap (CDS) or a constant maturity credit default swap (CMCDS). We find strong evidence of persistent differences in the hedging cost associated with the two comparable contracts. Between 2001 and 2006, it would have been more profitable to sell CDS and buy CMCDS while after the crisis between 2008 and 2013 the opposite strategy was profitable. Panel data tests indicate that for our sample period the implied forward CDS rates are unbiased estimates of future spot CDS rates. The changes in the company implied volatility is the main determinant of trading inefficiencies, followed by the changes in GDP and in the interest rates before the crisis, and the changes in sentiment index and in the VIX after the crisis.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Banking & Finance

ISSN

0378-4266

Publisher

Elsevier

Volume

58

Page range

361-375

Department affiliated with

  • Accounting and Finance Publications

Research groups affiliated with

  • Quantitative International Finance Network Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2020-01-23

First Open Access (FOA) Date

2020-01-31

First Compliant Deposit (FCD) Date

2020-01-31

Usage metrics

    University of Sussex (Publications)

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC