We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS market illiquidity by aggregating deviations of credit index levels from their no-arbitrage values implied by the index constituents' CDS spreads, and we construct a tradable...

The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDSbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This paper documents evidence against this...

Consistent with precautionary savings models, we provide evidence that firms hoard cash in response to an exogenous credit shortage. For identification, we compare public U.S. firms in the same industry, location, and size quintile, but whose access to bank credit was differentially affected...