학회 소식
공지사항
[2013년 제 4차] Did Liquidity Providers Become Liquidity Seekers?
작성자 : 관리자
조회수 : 1100
게시일 :
2013-12-16
The misalignment of corporate bond and credit default swap (CDS) spreads (the CDS- bond basis) during the 2007{2009 nancial crisis is often attributed to corporate bond dealers' shedding inventory when liquidity was scarce. This paper documents evidence against this widespread perception. In the months following Lehman's collapse, dealers, including proprietary trading desks in investment banks, provided liquidity in response to major selling activity on the part of clients. The dealers' corporate bond inventories rose sharply as a result. Although providing liquidity, dealers did not trade aggressively enough to close the CDS-bond basis. We also show that declining corporate bond prices following Lehman's collapse were concentrated in bonds with available CDS contracts and high levels of activity in basis trades, indicating that the presence of derivative contracts can disrupt the underlying cash market. Overall, our results suggest that the unwinding of pre-existing CDS-bond basis trades by non-dealer arbitrageurs including hedge funds was the main cause of the large negative basis and the disruption of the credit market.