Are credit default swaps a sideshow? Evidence that Information Flows from Equity to CDS Markets
This paper provides evidence that equity returns lead credit protection returns at daily and weekly frequencies, while credit protection returns do not lead equity returns. Our results indicate that informed traders are primarily active in the equity rather than the CDS market. These ?ndings are consistent with standard theories of market selection by informed traders in which market selection is deter- mined partially by transaction costs. We also ?nd that credit protection returns respond more quickly during salient news events (earnings announcements) com- pared to days with similar equity returns and turnover. This evidence provides support for explanations related to investor inattention.
|Date of creation:||Jul 2011|
|Date of revision:||Oct 2012|
|Contact details of provider:|| Postal: |
Web page: http://www.brandeis.edu/departments/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ericsson, Jan & Jacobs, Kris & Oviedo-Helfenberger, Rodolfo, 2004.
"The Determinants of Credit Default Swap Premia,"
SIFR Research Report Series
32, Institute for Financial Research.
- Roberto Blanco & Simon Brennan & Ian W. Marsh, 2004.
"An empirical analysis of the dynamic relationship between investment grade bonds and credit default swaps,"
Banco de Espa�a Working Papers
0401, Banco de Espa�a.
- Roberto Blanco & Simon Brennan & Ian W Marsh, 2004. "An empirical analysis of the dynamic relationship between investment-grade bonds and credit default swaps," Bank of England working papers 211, Bank of England.
- Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, 08.
- John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715, Cowles Foundation for Research in Economics, Yale University.
- Owen Lamont & Andrea Frazzini, 2007. "The Earnings Announcement Premium and Trading Volume," NBER Working Papers 13090, National Bureau of Economic Research, Inc.
- Kwan, Simon H., 1996. "Firm-specific information and the correlation between individual stocks and bonds," Journal of Financial Economics, Elsevier, vol. 40(1), pages 63-80, January.
- Hendershott, Terrence & Jones, Charles M. & Menkveld, Albert J., 2008.
"Does algorithmic trading improve liquidity?,"
CFS Working Paper Series
2008/41, Center for Financial Studies (CFS).
- Song Han & Hao Zhou, 2011.
"Effects of Liquidity on the Nondefault Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data,"
022011, Hong Kong Institute for Monetary Research.
- Song Han & Hao Zhou, 2008. "Effects of liquidity on the nondefault component of corporate yield spreads: evidence from intraday transactions data," Finance and Economics Discussion Series 2008-40, Board of Governors of the Federal Reserve System (U.S.).
- David Easley & Maureen O'Hara & P.S. Srinivas, 1998. "Option Volume and Stock Prices: Evidence on Where Informed Traders Trade," Journal of Finance, American Finance Association, vol. 53(2), pages 431-465, 04.
When requesting a correction, please mention this item's handle: RePEc:brd:wpaper:35. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Leslie Yancich)
If references are entirely missing, you can add them using this form.