Date of Degree
CDS, Peer Effects, Bond Pricing
This paper documents externalities associated with the introduction of credit default swaps (CDS) in the corporate bond market. I find that firms without traded CDS contracts (non-CDS firms) experience lower cost of debt when there are more peer firms with traded CDS contracts (CDS firms). This effect is stronger when non-CDS firms are more closely related to a CDS-firm and when the outstanding CDS contracts are more liquid. My findings are consistent with the view that CDS trading provides hedging opportunities and information for bond investors of non-CDS firms. This study provides evidence that CDS trading on peer firms has positive externalities on the cost of public debt for non-CDS firms.
Ren, Sunqian, "Externalities of CDS Trading: The Effect on Industry Peer Firms’ Cost of Debt" (2019). CUNY Academic Works.