CMBX Microstructure: Liquidity measures with limited information

Trading in commercial mortgage backed securities credit default swap indices (CMBX) is characterized by limited risk pricing information. Roll (1984), Thompson and Waller (1987) and Christopoulos (2020) provide techniques to evaluate the liquidity of instruments with limited pricing information. We thus implement these approaches to investigate into the liquidity of CMBX over the period 11/2007-4/2019 on a daily basis and compare those measures to daily reduced form risk decomposition estimates. The comparisons yield intuitive results allowing us to scale the risk decomposition estimation to 15 second intraday estimates during the Covid pandemic. From 4/2020-1/2021 we disclose regular structural concentrations of risk partition volatility in the cross section. We then apply these findings to the REIT market with an automated day trading strategy. Our bid-ask and risk composition estimates provide new insights into the liquidity of the CMBX sector before and during the Covid pandemic.