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On the compensation for illiquidity in sovereign credit markets

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorGroba, Jonatan
dc.contributor.authorSerrano, Pedro
dc.contributor.authorLafuente Luengo, Juan Ángel
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía de la Empresaes
dc.date.accessioned2014-10-16T15:10:50Z
dc.date.available2014-10-16T15:10:50Z
dc.date.issued2014-10
dc.description.abstractThis article analyzes the role of liquidity in the sovereign credit default swap (CDS) market. We employ a continuous-time specification to incorporate illiquidity as an additional pricing factor of default swap contracts for the most developed economies. The illiquidity discount process is identified as compensation to investors for the risk of unwinding their positions when trading in the less liquid part of the curve, and the information about illiquidity is directly extracted from the term structure of sovereign CDS spreads. Our empirical findings reveal that a positive time-varying illiquidity premium is embedded in sovereign default swaps. These risk premia exhibit substantial comovement across countries. Only unidirectional causality from default toliquidity is detected for the overall marketen
dc.description.sponsorshipJ. Groba acknowledges financial support from the Spanish Government project ECO2011-28134. J.A. Lafuente acknowledges financial support from the Ramon Areces Foundation, the Spanish Ministry of Education through grant ECO2012-31941, the Generalitat Valenciana through grant Prometeo II/2013/015 and the University Jaume I through grant P1.1A2012-09. P. Serrano acknowledges financial support from the Ministry of Economics and Competitiveness through grant ECO2012-34268en
dc.format.mimetypeapplication/pdf
dc.identifier.issn2341-0795
dc.identifier.repecwb142911
dc.identifier.urihttps://hdl.handle.net/10016/19510
dc.identifier.uxxiDT/0000001283es
dc.language.isoengen
dc.relation.ispartofseries14-11es
dc.relation.ispartofseriesUC3M Working papers. Business Economicsen
dc.relation.projectIDGobierno de España. ECO2012-31941es
dc.relation.projectIDGobierno de España. ECO2012-34268es
dc.relation.projectIDGeneralitat Valenciana. Prometeo II/2013/015es
dc.relation.projectIDGeneralitat Valenciana. P1.1A2012-09es
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España*
dc.rights.accessRightsopen accessen
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/*
dc.subject.jelG12
dc.subject.jelG13
dc.subject.jelG32
dc.subject.jelF30
dc.subject.otherCredit default swapen
dc.subject.otherIlliquidityen
dc.subject.otherDefaulten
dc.subject.otherRisk premiumen
dc.titleOn the compensation for illiquidity in sovereign credit marketsen
dc.typeworking paper*
dc.type.hasVersionSMUR*
dspace.entity.typePublication
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