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dc.contributor.authorTers, Kristyna
dc.contributor.authorGyntelberg, Jacob
dc.contributor.authorHoerdahl, Peter
dc.contributor.authorUrban, Jörg
dc.date.accessioned2017-05-04T08:45:36Z
dc.date.available2017-05-04T08:45:36Z
dc.date.issued2017-04-26
dc.identifier.issn1682-7678
dc.identifier.issn1020-0959
dc.identifier.urihttp://hdl.handle.net/11654/24899
dc.description.abstractWe find evidence that in the market for euro area sovereign credit risk, arbitrageurs engage in basis trades between credit default swap (CDS) and bond markets only when the CDS-bond basis exceeds a certain threshold. This threshold effect is likely to reflect costs that arbitrageurs face when implementing trading strategies, including transaction costs and costs associated with committing balance sheet space for such trades. Using a threshold vector error correction model, we endogenously estimate these unknown trading costs for basis trades in the market for euro area sovereign debt. During the euro sovereign credit crisis, we find very high transaction costs of around 190 basis points, compared to around 80 basis points before the crisis. Our results show, that even when markets in times of stress are liquid, the basis can widen as high market volatility makes arbitrage trades riskier, leading arbitrageurs to demand a higher compensation for increased risk. Our findings help explain the persistent non-zero CDS-bond basis in euro area sovereign debt markets and its increase during the last sovereign crisis.
dc.description.urihttp://www.bis.org/publ/work631.pdf
dc.language.isoen
dc.relation.ispartofBank for International Settlements Working Paper
dc.accessRightsAnonymous
dc.subjectSovereign credit risk, credit default swaps, price discovery, regime switch, intraday, arbitrage, transaction costs
dc.subject.ddcSovereign risk, arbitrage, transaction costsde
dc.titleArbitrage costs and the persistent non-zero CDS-bond basis: evidence from intraday euro area sovereign debt markets
dc.type01 - Zeitschriftenartikel, Journalartikel oder Magazin
dc.issue631
dc.audienceScience
fhnw.publicationStatePublished
fhnw.ReviewTypeAnonymous ex ante peer review of a complete publication
fhnw.InventedHereYes
fhnw.PublishedSwitzerlandYes
fhnw.pagination1-41
fhnw.IsStudentsWorkno
fhnw.publicationOnlineJa


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