Momentum is a classic anomaly against the efficient market hypothesis. In this paper I show that momentum can be generated from an efficient market where investors try to extract the true underlying value. Price is obtained as the best estimate of the intrinsic value using observable, but noisy,...

Is the CDS market liquid? Researchers claim that CDS market is liquid and thus the spreads reflect pure default risk. We investigate this claim. Since it is hard to measure liquidity precisely, we use an event study when a CDS is included into the CDX index. This event changes the liquidity of...

Default correlation is a concern especially after witnessing the financial crisis. To find default correlations, we would like to know asset correlations which are unobservable. In this paper we derive a model to infer asset correlations from Credit Default Swaps (CDSs). We use a structural...

Default contagion is a concern especially after witnessing the financial crisis. How the financial institutions are connected is crucial to how likely they will default together. However, the information on financial network structure is not available. This paper builds a probabilistic graphical...

We study the effect of credit default swaps (CDS) on a firm's risk shifting. Because CDS provides insurance against default, bondholders become indifferent whether a firm defaults and likely reduce monitoring efforts. Moreover, CDS strengthens bondholders' bargaining power, potentially leading...