Do credit default swaps (CDS) continue to serve as hedging instruments? A systematic literature review

This study systematically reviews 103 empirical papers on credit default swaps (CDS), published through March 2025, to analyze their effectiveness as hedging instruments and their wider role in financial markets. Using PRISMA guidelines, the review is designed to focus on three key strands: (1) features of CDS; (2) CDS growth over approximately two decades, contrasting pre-crisis expansion with post-crisis dynamics, and (3) the most recent CDS advancements shaping their use with its advantages and market trends. The findings reveal that some studies underline the benefits of CDS in improving liquidity, risk transfer, and capital relief, while others warn that they can deepen systemic vulnerabilities in times of turmoil. This heterogeneity of findings shows that the effectiveness of CDS depends on the market structure, the institutional framework, and broader economic conditions. This review enhances the discourse by elucidating policy implications for transparency, capital regulations, and systemic oversight, while delineating a prospective research agenda for credit derivatives.