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How Do Corporate Factors Affect Price Discovery Process Between Equity and Credit Markets?

Author

Listed:
  • Xinquan Zhou

    (WHUT - Wuhan University of Technology)

  • Guillaume Bagnarosa

    (AGR - Agribusiness - Rennes School of Business - Rennes SB - Rennes School of Business, SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

  • Mark Cummins

    (University of Strathclyde [Glasgow])

Abstract

We conduct price discovery analysis to investigate the lead–lag relationship between equity and CDS markets within a corporate finance framework. Based on a sample of 89 firms covering investment‐grade and high‐yield firms, we detect stationarity and cointegration within a panel framework associated with nine corporate financial characteristic factors. With an expectation maximisation Kalman filter applied to deal with non‐synchronicity and microstructure noise in 1‐min data, we verify its practicability in addressing the issue of missing data in a high‐frequency modelling setting. We demonstrate that the price discovery process is more credit market driven when a company's credit risk increases, which is significantly more prominent for small‐sized firms with highly volatile equity prices and increasing default probability.

Suggested Citation

  • Xinquan Zhou & Guillaume Bagnarosa & Mark Cummins, 2025. "How Do Corporate Factors Affect Price Discovery Process Between Equity and Credit Markets?," Post-Print hal-05562524, HAL.
    • Handle: RePEc:hal:journl:hal-05562524
    DOI: 10.1111/acfi.70116
    as

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