Topic：Funding Liquidity Shocks in a Natural Experiment:Evidence from the
CDS Big Bang
Speaker：Yangru Wu, RutgersUniveristy
Host：Professor Li Ping
Time：2017.3.16,10:00
Location：New Main Building A1048
Abstract：
The CDS Big Bang (the protocol changes for the CDS market in April 2009)
increased the upfront funding requirements for trading CDS contracts,
especially for those with credit spreads further away from 100 and 500 basis
points. Exploiting this natural experiment, we document direct evidence that a
higher funding requirement reduces market liquidity, increases the absolute
value of the CDS-bond basis, and CDS spread volatility. Our evidence highlights
an unintended consequence of the ongoing standardization of OTC markets—while
its intention is to reduce systemic risk, standardization may jeopardize market
liquidity precisely during periods of financial distress.
About the speaker：
Yangru Wu is Professor of
Finance and Director of the Master of Quantitative Finance Program at the
Rutgers Business School. He received his Ph.D. from the Ohio State University
in 1993. His current research interest areas are international finance and
empirical asset pricing. He has published over 50 articles in numerous
scholastic journals, including Journal of Finance, International Economics
Review, Journal of Monetary Economics, Journal of Money Credit & Banking,
and Biometrika.
