Credit Default Swap Bond Basis Trading Opportunities in Times of Economic Uncertainty in European Financial Market
(2020) NEKN02 20201Department of Economics
- Abstract
- We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the... (More)
- We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the positive basis trading turned out to be more profitable during the listed events. We also found that the fixed, 1 month holding period outperformed the 2-week fixed and volatility triggered holding period. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9013719
- author
- Troeger, Annemarie LU and Kaur, Anne-Mari LU
- supervisor
- organization
- course
- NEKN02 20201
- year
- 2020
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- CDS-bond spread, Basis Trading, Volatility triggered exit, economic uncertainty
- language
- English
- id
- 9013719
- date added to LUP
- 2020-08-29 11:21:40
- date last changed
- 2020-08-29 11:21:40
@misc{9013719, abstract = {{We investigated CDS-bond basis trading strategies during five different events, which possibly have caused market uncertainty on the European market. Those events include the peak of the Greek debt crisis (2015), Brexit announcement (2016), French presidential elections (2017), Tariffs on European Union (2018) and COVID-19 crisis (2020). Further, using the companies from two different iTraxx indices, the sample consisted of 10 non-investment grade and 42 investment grade companies. We found that the basis trading was more profitable during the “turbulent” market condition than during selected “calm” periods, outside the event periods. Moreover, even though for some companies both positive and negative basis trading opportunity arose, the positive basis trading turned out to be more profitable during the listed events. We also found that the fixed, 1 month holding period outperformed the 2-week fixed and volatility triggered holding period.}}, author = {{Troeger, Annemarie and Kaur, Anne-Mari}}, language = {{eng}}, note = {{Student Paper}}, title = {{Credit Default Swap Bond Basis Trading Opportunities in Times of Economic Uncertainty in European Financial Market}}, year = {{2020}}, }