TY - JOUR T1 - Margin-Based Asset Pricing and the Determinants<br/>of the CDS Basis JF - The Journal of Fixed Income SP - 61 LP - 78 DO - 10.3905/jfi.2014.24.2.061 VL - 24 IS - 2 AU - Liying Wang Y1 - 2014/09/30 UR - https://pm-research.com/content/24/2/61.abstract N2 - The credit default swap (CDS) basis was significantly negative during the 2007–2009 financial crisis, which was considered an anomaly. Using single-name CDS data, the author finds that the CDS basis decreased as the funding costs, credit risk premium, and market illiquidity increased. Furthermore, cross-sectional results show that the sensitivities of the CDS basis to funding costs, credit risk premium, and market illiquidity are priced, even after controlling for the individual bond liquidity and other firm characteristics. The results are consistent with margin-based asset pricing theories that the difference in margin requirements on two otherwise identical securities gives rise to the CDS basis.TOPICS: Credit default swaps, fixed income and structured finance ER -