Accessibility navigation

Credit and liquidity components of corporate CDS spreads

Coro, F., Dufour, A. ORCID: and Varotto, S. ORCID: (2013) Credit and liquidity components of corporate CDS spreads. Journal of Banking & Finance, 37 (12). pp. 5511-5525. ISSN 0378-4266

Full text not archived in this repository.

It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1016/j.jbankfin.2013.07.010


This paper investigates the role of credit and liquidity factors in explaining corporate CDS price changes during normal and crisis periods. We find that liquidity risk is more important than firm-specific credit risk regardless of market conditions. Moreover, in the period prior to the recent “Great Recession” credit risk plays no role in explaining CDS price changes. The dominance of liquidity effects casts serious doubts on the relevance of CDS price changes as an indicator of default risk dynamics. Our results show how multiple liquidity factors including firm specific and aggregate liquidity proxies as well as an asymmetric information measure are critical determinants of CDS price variations. In particular, the impact of informed traders on the CDS price increases when markets are characterised by higher uncertainty, which supports concerns of insider trading during the crisis.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:33250

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation