Price discovery in the CDS market: the informational role of equity short interest

• 成果类型: Article
• 署名作者: Griffin, Paul A.; Hong, Hyun A.; Kim, Jeong-Bon
• 署名单位: University of California System; University of California Davis; University of California System; University of California Riverside; University of Waterloo
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-016-9364-0
• 发表日期: 2016
• 页码: 1116-1148
• 关键词: CREDIT DEFAULT SWAP; SHORT-SELLERS; Bond market; CORPORATE-BONDS; stock returns; earnings announcements; Fundamental analysis; EFFICIENCY; arbitrage; spreads

摘要

This paper documents a negative relation between equity short interest and future returns on credit default swaps (CDS). This relation is most consistent with the theory that equity short interest telegraphs relevant information to secondary market CDS investors about credit spread not transmitted into prices in other ways. The CDS return predictive pattern also strengthens negatively for equity short-interest positions subject to an outward shift in the demand for shortable stocks, which we view as a proxy for the expected benefits of private information (Cohen et al. in J Finance 62(5):2061-2096, 2007). This suggests that features of the shorting market may help explain the lagged response of CDS spreads to equity short interest. Our tests of economic significance, however, do not support the view that the CDS return predictive pattern is strong enough to cover the round-trip cost of trading in the secondary CDS market.