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 … with higher liquidity exposures have higher expected excess returns for sellers of credit protection and trade with wider …

-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce …, including proprietary trading desks in investment banks, provided liquidity in response to the large selling by clients …. Corporate bond inventory of dealers rose sharply as a result. Although providing liquidity, limits to arbitrage, possibly in the …

surprises, which suggests that private information does not hinder CDS liquidity. …

(CDS) premium data as a proxy for the default risk of the entity, we find that both CDS and liquidity are priced into … credit spreads, with liquidity explaining more credit spreads than credit risk (proxied using CDS premia) itself. We also …, volatility, liquidity, the spot rate, the slope of the yield curve, the time to maturity of the underlying bond and the level and …