Economic policy uncertainty, CDS spreads, and CDS liquidity provision

Xinjie Wang, Weike Xu, Zhaodong (Ken) Zhong

Research output: Contribution to journalArticlepeer-review

27 Scopus citations


Using a news-based index of economic policy uncertainty (EPU), we find that EPU is positively associated with credit default swap (CDS) spreads and negatively associated with the number of liquidity providers in the CDS market. A 10% increase in EPU leads to an 8.4% increase in CDS spreads and a 4.0% decrease in the number of liquidity providers. Furthermore, the effects of EPU are persistent and robust after controlling for macroeconomic variables. Our results are also robust to different econometric methodologies. Overall, our findings suggest that, when EPU is high, investors find credit protection more costly and difficult to purchase.

Original languageEnglish (US)
Pages (from-to)461-480
Number of pages20
JournalJournal of Futures Markets
Issue number4
StatePublished - Apr 2019

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics


  • credit default swap
  • liquidity provision
  • market depth
  • policy uncertainty


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