دانلود رایگان مقاله انگلیسی ریسک نقدینگی و گسترش مبادله اعتباری - الزویر 2018

ABSTRACT

We show that liquidity tail risk in credit default swap (CDS) spreads is time-varying and explains variation in CDS spreads. We capture the liquidity tail risk of a CDS contract written on a firm by estimating the tail dependence, i.e., the asymptotic probability of a joint surge in the bid-ask spread of the firm’s CDS and the illiquidity of a CDS market index. Our results show that protection sellers earn a statistically and economically significant premium for bearing the risk of joint extreme downwards movements in the liquidity of individual CDS contracts and the CDS market. This effect holds in various robustness checks such as instrumental variable regressions and alternative liquidity measures and is particularly pronounced during the financial crisis.

6 Conclusion

In this paper, we show that liquidity tail risk in the CDS market significantly comoves with CDS spreads. We make use of a dynamic copula model to estimate the upper tail dependence between a CDS contract’s idiosyncratic bid-ask spreads and illiquidity in the CDS market (i.e., liquidity tail betas). In panel regressions, we then regress the CDS spreads of our sample firms on the contracts’ liquidity tail betas and various controls for the firms’ default risk. The results that we find have important implications for risk managers and investors that enter the CDS market as net protection sellers like insurers and pension funds. Our results provide ample evidence for the presence of time-varying liquidity tail risk in the CDS market. Liquidity tail risk spiked across our full sample during the financial crisis with peaks in liquidity tail risk appearing shortly after the bailout of AIG and at the start of 2009. Moreover, monthly CDS spreads comove significantly with liquidity tail betas with protection sellers demanding a premium for bearing liquidity tail risk.