Campus Only Senior Thesis
Bachelor of Arts
© 2013 Rodrigo Bravo Beneitez
This paper seeks to fill a gap in the literature regarding the consequences of banning ‘naked’ Credit Default Swaps (CDS). In particular, I use the European Union’s Ban on ‘naked” Sovereign CDS as an event study to evaluate the impact that banning such derivative products has on the price discovery process in the credit markets. Using both Granger Causality tests and a Vector Error Correction Model, I find that before November 1, 2012, CDS are the clear price leader in the credit markets. However, since the official date the regulation was put into effect, CDS’ price leadership was eroded. Moreover, after the ban, CDS and Bond Yield Spreads are no longer cointegrated in the long run, suggesting that different pricing mechanisms now exist between the two securities
Bravo Beneitez, Rodrigo, "'Naked’ CDS Regulation and its Impact On Price Discovery in the Credit Markets" (2013). CMC Senior Theses. 636.
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