Journal of Finance Vol. 74 No. 5 2019
Limited Investment Capital and Credit Spreads
Abstract
Using proprietary credit default swap (CDS) data, I investigate how capital shocks at protection sellers impact pricing in the CDS market. Seller capital shocks—measured as CDS portfolio margin payments—account for 12% of the time‐series variation in weekly spread changes, a significant amount given that standard credit factors account for 18% during my sample. In addition, seller shocks possess information for spreads that is independent of institution‐wide measures of constraints. These findings imply a high degree of market segmentation, and suggest that frictions within specialized financial institutions prevent capital from flowing into the market at shorter horizons.
- DOI
- 10.1111/jofi.12777
- Volume
- 74
- Issue
- 5
- Pages
- 2303-2347
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref