Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS.
AbstractThis paper explores the dynamic relationship between stock market implied credit spreads, CDS spreads, and bond spreads. A general VECM representation is proposed for changes in the three credit spread measures which accounts for zero, one, or two independent cointegration equations, depending on the evidence provided by any particular company. Empirical analysis on price discovery, based on a proprietary sample of North American and European firms, and tailored to the specific VECM at hand, indicates that stocks lead CDS and bonds more frequently than the other way round. It likewise confirms the leading role of CDS with respect to bonds.
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Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/7095.
Length: 2027 p.
Date of creation: Nov 2009
Date of revision:
Publication status: Published in Journal of Banking and Finance (2009-11) v. 33, p.2013-2025.
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Web page: http://www.uc3m.es
Credit spreads; Price discovery;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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