The CDS‐Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns
We provide a comprehensive empirical analysis on the implication of CDS‐Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the...
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| Veröffentlicht in: | The journal of futures markets 2017-08, Vol.37 (8), p.836-861 |
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| container_title | The journal of futures markets |
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| creator | Kim, Gi H. Li, Haitao Zhang, Weina |
| description | We provide a comprehensive empirical analysis on the implication of CDS‐Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of credit default swap (CDS). We show that a basis factor, constructed as the return differential between LOW and HIGH quintile basis portfolios, is a superior empirical proxy that captures the new risks. In the cross section of investment grade bond returns, the basis factor carries an annual risk premium of about 3% in normal periods. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:836–861, 2017 |
| doi_str_mv | 10.1002/fut.21845 |
| format | Article |
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Jrl Fut Mark 37:836–861, 2017</description><subject>Arbitrage</subject><subject>Basis</subject><subject>Bond issues</subject><subject>Bond markets</subject><subject>Corporate bonds</subject><subject>Credit default swaps</subject><subject>Portfolios</subject><issn>0270-7314</issn><issn>1096-9934</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2017</creationdate><recordtype>article</recordtype><recordid>eNp1kM1OAjEUhRujiYgufIMmrlwM3P7MT5cwgpoQTQTWTWfa0SFIsS0x7HwEn9EnsTBuXd2bm--cc3MQuiYwIAB02OzCgJKCpyeoR0BkiRCMn6Ie0BySnBF-ji68XwGAEBx66GnxZnB5N__5-h7bjcZj5VuPR65qg1OvBqt4CwfEWe_x3NShtRtsG1xat7VOBYOPuhcTdm7jL9FZo9beXP3NPlpOJ4vyIZk93z-Wo1lSs4ynSQWQglCCQcGq2hhFGVQZrWvaiAziLopUARQ5FEC0blKqdME1UK20FqxmfXTT-W6d_dgZH-TKxvwYKYkgKeU5jdZ9dNtR9eF7Zxq5de27cntJQB7qkrEueawrssOO_WzXZv8_KKfLRaf4BY_saxI</recordid><startdate>201708</startdate><enddate>201708</enddate><creator>Kim, Gi H.</creator><creator>Li, Haitao</creator><creator>Zhang, Weina</creator><general>Wiley Periodicals Inc</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0002-0972-5142</orcidid></search><sort><creationdate>201708</creationdate><title>The CDS‐Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns</title><author>Kim, Gi H. ; Li, Haitao ; Zhang, Weina</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c3645-b00509a93083bceea230b62cc2f96030b985a00870801ddf52ad84d02dadd93c3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2017</creationdate><topic>Arbitrage</topic><topic>Basis</topic><topic>Bond issues</topic><topic>Bond markets</topic><topic>Corporate bonds</topic><topic>Credit default swaps</topic><topic>Portfolios</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Kim, Gi H.</creatorcontrib><creatorcontrib>Li, Haitao</creatorcontrib><creatorcontrib>Zhang, Weina</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The journal of futures markets</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Kim, Gi H.</au><au>Li, Haitao</au><au>Zhang, Weina</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>The CDS‐Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns</atitle><jtitle>The journal of futures markets</jtitle><date>2017-08</date><risdate>2017</risdate><volume>37</volume><issue>8</issue><spage>836</spage><epage>861</epage><pages>836-861</pages><issn>0270-7314</issn><eissn>1096-9934</eissn><abstract>We provide a comprehensive empirical analysis on the implication of CDS‐Bond basis arbitrage for the pricing of corporate bonds. 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| ispartof | The journal of futures markets, 2017-08, Vol.37 (8), p.836-861 |
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| language | eng |
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| source | Wiley Online Library Journals Frontfile Complete; Business Source Complete |
| subjects | Arbitrage Basis Bond issues Bond markets Corporate bonds Credit default swaps Portfolios |
| title | The CDS‐Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns |
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