Publications
Publications
- October 2019
- Journal of Finance
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.
Keywords
Credit Risk; Derivatives; Credit Derivatives and Swaps; Capital Markets; Credit; Financial Institutions
Citation
Siriwardane, Emil N. "Limited Investment Capital and Credit Spreads." Journal of Finance 74, no. 5 (October 2019): 2303–2347.