We develop a state-space model to decompose bid and ask quotes of CDS into two components, fair default premium and … liquidity premium. This approach gives a better estimate of the default premium than mid quotes, and it allows to disentangle … and compare the liquidity premium earned by the protection buyer and the protection seller. In contrast to other studies …

In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures … around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections … and other asset characteristics, and (c) how illiquidity affects expected asset returns. Using a unified model from …

construct an endogenous measureof systemic, non-diversi able risk capturing the cross-sectional liquidity-risk mismatch ….Consistent with the model predictions, we find that liquidity mismatch positivelypredicts prices in the D2D market whereas the cross …

We examine the relationship between stock extreme illiquidity and the implied cost of capital for firms from 45 … countries. We document robust evidence that firms whose stocks have a greater potential for extreme illiquidity realizations … suffer from higher cost of capital. A one standard deviation increase in a stock's liquidity tail index leads to a rise of 30 …

In this paper we show that informational and real frictions in CDS markets strongly affect CDS premia. We derive this … main finding using a proprietary set of individual CDS transactions cleared by the Depository Trust & Clearing Corporation …. We first show that CDS traders adjust the CDS premium in response to the observed order flow. Buy orders lead to an …

We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS … constituents' CDS spreads, and we construct a tradable liquidity factor from returns on index arbitrage strategies. CDS contracts … CDS spreads; on average, liquidity risk accounts for 24% of CDS spreads. Consistent with recent models of intermediary …

This paper examines the effects of public news releases on the market liquidity in one of the most important OTC … derivatives markets — the CDS market. We document that, at the time of news releases, the bid-ask spread is wider, the number of … quotes is larger, and the number of dealers is greater. Earnings announcements have particularly strong effects on liquidity …

(CDS) market around the recent financial crisis. The authors perform analyses based on vector autoregression model and the … dynamic conditional correlation model. The estimation of vector autoregression models reveals that changes in liquid CDS (LCDS …) spreads lead to changes in illiquid CDS spreads at least one week ahead during the financial crisis period, whereas the …

. The attractiveness of bonds as liquidity makes aggregate bond demand downward-sloping, so that greater bond supply raises …