Graduation Year


Date of Submission


Document Type

Open Access Senior Thesis


Robert Day School Prize for Best Senior Thesis in Economics and Finance

Degree Name

Bachelor of Arts



Reader 1

Fan Yu

Rights Information

© 2019 Jennifer T. Mace


Over the past decade, numerous engineered credit events and cases of market participants manipulating bond prices to influence Credit Default Swap (CDS) auction payouts have occurred. These cases have become increasingly common, and the CFTC has stated they may constitute market manipulation and undermine not only the CDS market but also the credit derivative and default markets. Although there is a plethora of news and media coverage on publicized cases, there is no previous empirical research on evidence of these practices. This paper is motivated by the desire to determine if there is indirect evidence of bond price manipulation around default and of market participants’ attempts to favorably move CDS’s underlying bond prices to achieve more profitable positions around default and emerging from CDS auctions. The analysis is performed by analyzing the effect of a bonds’ inclusion in CDS auctions on bond return volatility around the time of default while controlling for credit risk, illiquidity, firm fundamentals, and other bond-level controls. I find that bond return volatility around default is much higher as a result of a bond’s inclusion in a CDS auction, which serves as indirect evidence of bond price manipulation around default as market participants strive for more profitable CDS auction outcomes and possibly of manufactured credit events. Consistent with previous literature, I also find that bond illiquidity significantly impacts bond return volatility. My results are robust to propensity score matching, implementing double-robust estimators, and controlling for any time-varying cross-sectionally-invariant fluctuations in bond return volatility.