When do CDS spreads lead? Rating events, private entities, and firm-specific information flows

• 成果类型: Article
• 署名作者: Lee, Jongsub; Naranjo, Andy; Velioglu, Guner
• 署名单位: Seoul National University (SNU); State University System of Florida; University of Florida
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2018.07.011
• 发表日期: 2018
• 页码: 556-578
• 关键词: CDS versus stocks and bonds; Credit ratings; Firm-specific credit information flow; Lead-lag relations; Private Firms

摘要

We find that credit default swap (CDS) spreads contribute significantly to price discovery in financial markets when firm-specific credit information is prominent. Using 3,470 S&P rating notch and watch changes for US public and private entities from 2001-2013, we show that CDS prices contain unique firm credit risk information that is not captured by the prices of other related securities such as stocks and bonds of the same firm. Credit information unidirectionally flows from CDS to bonds, particularly for private entities whose stocks are not concurrently trading in markets. We further find that CDS returns significantly predict stock returns, particularly their idiosyncratic components. (C) 2018 Elsevier B.V. All rights reserved.