Time-Varying Credit Risk Discovery in the Stock and CDS Markets: Evidence from Quiet and Crisis Times

S. Forte Arcos; Lidija Lovreta

doi:10.1111/j.1468-036X.2013.12020.x

Time-Varying Credit Risk Discovery in the Stock and CDS Markets: Evidence from Quiet and Crisis Times

S. Forte Arcos, Lidija Lovreta

Group of Research in Economics and Finance

Producció científica: Article en revista indexada › Article › Avaluat per experts

19 Cites (Scopus)

Resum

We analyse the dynamic relationship between the stock and the CDS market during the period 2002-2008. We document that the stock market's informational dominance reported in previous studies holds only in times of financial crisis. During tranquil times, the CDS market's contribution to price discovery is equal or higher than that of the stock market. Moreover, the credit risk level of the company has a positive effect on the information share of its stocks beyond the effect of the overall state of the economy. We show that these conclusions do not contradict the argument of insider trading in credit derivatives.

Idioma original	Anglès
Pàgines (de-a)	430-461
Nombre de pàgines	32
Revista	European Financial Management
Volum	21
Número	3
DOIs	https://doi.org/10.1111/j.1468-036X.2013.12020.x
Estat de la publicació	Publicada - 1 de juny 2015

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abstract = "We analyse the dynamic relationship between the stock and the CDS market during the period 2002-2008. We document that the stock market's informational dominance reported in previous studies holds only in times of financial crisis. During tranquil times, the CDS market's contribution to price discovery is equal or higher than that of the stock market. Moreover, the credit risk level of the company has a positive effect on the information share of its stocks beyond the effect of the overall state of the economy. We show that these conclusions do not contradict the argument of insider trading in credit derivatives.",

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N2 - We analyse the dynamic relationship between the stock and the CDS market during the period 2002-2008. We document that the stock market's informational dominance reported in previous studies holds only in times of financial crisis. During tranquil times, the CDS market's contribution to price discovery is equal or higher than that of the stock market. Moreover, the credit risk level of the company has a positive effect on the information share of its stocks beyond the effect of the overall state of the economy. We show that these conclusions do not contradict the argument of insider trading in credit derivatives.

AB - We analyse the dynamic relationship between the stock and the CDS market during the period 2002-2008. We document that the stock market's informational dominance reported in previous studies holds only in times of financial crisis. During tranquil times, the CDS market's contribution to price discovery is equal or higher than that of the stock market. Moreover, the credit risk level of the company has a positive effect on the information share of its stocks beyond the effect of the overall state of the economy. We show that these conclusions do not contradict the argument of insider trading in credit derivatives.

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Time-Varying Credit Risk Discovery in the Stock and CDS Markets: Evidence from Quiet and Crisis Times

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