Journal article 717 views
Are there benefits to being naked? The returns and diversification impact of capital structure arbitrage
The European Journal of Finance, Volume: 19, Issue: 9, Pages: 815 - 840
Swansea University Author: Maggie Chen
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DOI (Published version): 10.1080/1351847X.2011.637115
Abstract
In a naked credit default swap (CDS) position a party pays an income stream to a seller of protection to swap away default risk on an underlying defaultable security without actually holding this reference instrument. Using mark to market returns on a large cross section of CDS positions, held indep...
| Published in: | The European Journal of Finance |
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| ISSN: | 1351-847X |
| Published: |
2013
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| Online Access: |
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa6734 |
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| Abstract: |
In a naked credit default swap (CDS) position a party pays an income stream to a seller of protection to swap away default risk on an underlying defaultable security without actually holding this reference instrument. Using mark to market returns on a large cross section of CDS positions, held independently from their reference entity, we implement a novel test to establish whether their inclusion in an optimised portfolio is replicable by a large set of alternative assets. Overall, we nd signi cant excess returns of over 28% per annum against an optimised benchmark, we speculate that it is these characteristics that could be driving a bubble in the CDS market. |
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| Keywords: |
Capital Structure Arbitrage, Credit Default Swaps, Portfolio Management, Large Scale |
| College: |
Faculty of Humanities and Social Sciences |
| Issue: |
9 |
| Start Page: |
815 |
| End Page: |
840 |