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The premium and settlement of CCPs during the financial crisis: Evidence from the JGB market

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  • Hattori, Takahiro

Abstract

This study evaluates the role of central counterparties (CCPs) in the over-the-counter market during the 2008–2009 global financial crisis. It shows that the CCPs allowed the premium to appreciate in times of stress by taking advantage of the unique feature of JGB futures. We estimate CCP premium by comparing 6.75- and 7-year JGBs, which generate almost the same cash flow, differing in the linkage to CCP’s settlement through JGB futures, and find that a CCP premium emerged during the crisis and disappeared afterward. Furthermore, we show that investors’ settlement via CCPs drastically increased. Our results support the effectiveness of recent regulatory reforms that mitigate counterparty risk through CCPs.

Suggested Citation

  • Hattori, Takahiro, 2023. "The premium and settlement of CCPs during the financial crisis: Evidence from the JGB market," Journal of International Money and Finance, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:jimfin:v:132:y:2023:i:c:s0261560622001772
    DOI: 10.1016/j.jimonfin.2022.102774
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    More about this item

    Keywords

    Central clearing; Counterparty risk; Financial crisis; JGB market;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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