Title: How Trade Matching Forms in the Credit Default Swap Market
Abstract: We investigate how the pairing of dealers and customers in credit default swap (CDS) transactions is influenced by the participants’ characteristics. Using data from the Depository Trust & Clearing Corporation on trade matching decisions in the UK CDS market, we employ a matching/network formation framework to uncover participant preferences. We also extend the reference-entity-specific approach by applying a panel fixed effects model to attain, in combination, a comprehensive understanding of the formation of the UK CDS network. The matching/network formation approach supports the theoretical prediction that the UK CDS market is congregating on a small number of market participants that are able to offer lower transaction costs due to economies of scale. Our reference-entity-specific analysis finds that network formation is an outcome of the interplay between hedging and speculative purposes in the UK CDS market.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 1
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