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Liquidity and Pricing of Credit Default Swaps in Japan: Evidence from a Benchmark Index for Corporate Debt Claims

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  • Kei-Ichiro Inaba

    (Organisation for Economic Co-operation and Development
    Bank of Japan)

Abstract

This article is a contribution towards the growing empirical literature on the relationship between liquidity and pricing of credit default swaps (CDSs). To the best of my knowledge, the article becomes the first to show that market liquidity does matter to CDS pricing in Japan, by looking into a sole benchmark index of CDS trading for investment-grade debt claims, or the Markit iTraxx Japan (MiJ). The impact of illiquidity on MiJ premia has declined since the International Swaps and Derivatives Association introduced new trade practices in April 2009. The liquidity of the MiJ has increased since the Japan Securities Clearing Corporation started operating as a central counterpart for the MiJ in July 2011. The price discovery ability of the MiJ has also increased since then.

Suggested Citation

  • Kei-Ichiro Inaba, 2018. "Liquidity and Pricing of Credit Default Swaps in Japan: Evidence from a Benchmark Index for Corporate Debt Claims," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(1), pages 111-143, August.
    • Handle: RePEc:kap:jfsres:v:54:y:2018:i:1:d:10.1007_s10693-016-0241-6
    DOI: 10.1007/s10693-016-0241-6
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    More about this item

    Keywords

    Credit default swap; Liquidity and asset pricing; Credit risk pricing; Price discovery;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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