Anmerkungen:
In: Journal of Futures Markets, Vol. 37, 836-861, August 2017
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 15, 2016 erstellt
Beschreibung:
We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of CDS. We show that a basis factor, constructed as the return differential between LOW and HIGH quintile basis portfolios, is a superior empirical proxy that captures the new risks. In the cross section of investment grade bond returns, the basis factor carries an annual risk premium of about 3% in normal periods