Multidimensional Effects of Central Clearing on CDS Market Liquidity and Their Economic Channels – A Regression Discontinuity Approach

G. Schoenemann
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Abstract

In this study, I analyze the effect of central clearing on market liquidity in the CDS market. This study extends existing literature by using semi-parametric and non-parametric regression discontinuity designs (RDD) in order to isolate the effect of central clearing on measures of market tightness, market depth and market resiliency. I find evidence for a decrease in absolute bid-ask spreads with the beginning of central clearing and an increase in gross trading volume. Bid-ask spread resiliency decreases with the beginning of central clearing. These effect differ across contracts depending on their fundamental risk and liquidity risk. I show that counterparty risk and inventory costs may partly explain the effects of central clearing on CDS market liquidity. Especially the lower relevance of counterparty risk and lower regulatory capital charges seem to affect positively dealer competition and risk-taking capacity in the CDS market.
中央清算对CDS市场流动性的多维效应及其经济渠道——一个不连续回归方法
在本研究中,我分析了中央清算对CDS市场流动性的影响。本研究通过使用半参数和非参数回归不连续设计(RDD)来扩展现有文献,以分离中央出清对市场紧张度、市场深度和市场弹性措施的影响。我发现有证据表明,随着中央清算的开始,绝对买卖价差下降,总交易量增加。买卖价差弹性随着中央结算的开始而下降。这些影响因合约的基本风险和流动性风险而异。我表明,交易对手风险和库存成本可以部分解释中央清算对CDS市场流动性的影响。尤其是交易对手风险的低相关性和较低的监管资本费用似乎对CDS市场中的交易商竞争和风险承担能力产生了积极影响。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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