Why is Price Discovery in Credit Default Swap Markets News-Specific?

Arbeitspapier

We analyse daily lead-lag patterns in US equity and credit default swap (CDS) returns. We first document that equity returns robustly lead CDS returns. However, we find that the CDS-lag is due to common (and not firm-specific) news and arises predominantly in response to positive (instead of negative) equity market news. We provide an explanation for this news-specific price discovery based on dealers in the CDS market exploiting their informational advantage vis-à-vis institutional investors with hedging demands. In support of this explanation we find that the CDS-lag and its news-specificity are related to various firm-level proxies for hedging demand in the cross-section as well measures for economy-wide informational asymmetries over time.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Tinbergen Institute Discussion Paper ; No. 12-033/2/DSF33

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading
• Thema: price discovery ; hedging demand ; CDS markets ; equity markets ; Spekulation ; Asymmetrische Information ; Finanzanalyse ; Kreditderivat ; Hedging ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Marsh, Ian W. ; Wagner, Wolf
• Ereignis: Veröffentlichung
• (wer): Tinbergen Institute
• (wo): Amsterdam and Rotterdam
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/87299
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ