Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS

S. Forte Arcos, Juan Ignacio Peña

Research output: Indexed journal article Articlepeer-review

187 Citations (Scopus)

Abstract

This 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.

Original languageEnglish
Pages (from-to)2013-2025
Number of pages13
JournalJournal of Banking and Finance
Volume33
Issue number11
DOIs
Publication statusPublished - Nov 2009
Externally publishedYes

Keywords

  • Credit spreads
  • Price discovery

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