The economic significance of CDS price discovery

Xiang, Vincent; Chng, Michael T.; Fang, Victor

doi:10.1007/s11156-015-0540-2

Cited by 11 publications

(2 citation statements)

References 32 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Xiang et al (2015) test the economic significance of CDS price discovery on a similar sample to mine (non-financial investment-grade US firms from 2005 to 2009) and document non-trivial economic profits from trading stocks according to the credit risk price signal of the CDS market. The asymmetric information can generate a temporary mispricing between CDS and equity for a specific firm and it can fuel arbitrage trading across the two markets (so-called capital structure arbitrage).…”

Section: The Funding Channel (Or Supply Channel)mentioning

confidence: 99%

Explaining co-movements between equity and CDS bid-ask spreads

Marra

2016

Rev Quant Finan Acc

View full text Add to dashboard Cite

In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.

show abstract

Section: The Funding Channel (Or Supply Channel)mentioning

confidence: 99%

Explaining co-movements between equity and CDS bid-ask spreads

Marra

2016

Rev Quant Finan Acc

View full text Add to dashboard Cite

show abstract

“… Xiang et al . () demonstrate profitable simulated equity trading strategies utilising leading CDS information. …”

mentioning

confidence: 99%

The pricing of accruals quality in credit default swap spreads

Alam

Hettler

et al. 2018

Accounting & Finance

View full text Add to dashboard Cite

We examine the association between accounting information risk, measured with accruals quality (AQ), and credit spreads, primarily measured with credit default swap (CDS) spreads. Theoretically, AQ measures the precision with which accruals map into cash flows. Better AQ implies a more precise estimate of future cash flows and, we predict, a reduction in credit spreads due to resulting lower uncertainty regarding the ability to meet debt interest and principal payments. In support of this hypothesis, we find a negative relationship between AQ and CDS spreads whereby better AQ is associated with lower CDS spreads. Additionally, we investigate the components of total AQ and find that innate AQ is more strongly associated with CDS spreads than is discretionary AQ. We further show that AQ moderates the market's pricing of earnings: the relationship between earnings and CDS spreads weakens as AQ worsens. Together, our results indicate that accounting information risk is priced in credit spreads and that the CDS market responds not only to the level of earnings, but the quality thereof as well.

show abstract

Forecasting high‐yield equity and CDS index returns: Does observed cross‐market informational flow have predictive power?

Procasky

Yin

2022

Journal of Futures Markets

View full text Add to dashboard Cite

We examine the predictive power of cross-market informational flow in the systematic high-yield credit default swap (CDS) and equity markets from 2004 to 2019. Overall, we find both markets useful in forecasting future values of the other, indicating each is more efficient in pricing certain types of information.However, the CDS market has an informational advantage over the high-yield and broader equity market, something not previously documented in the closely related literature, although the advantage and forecasting ability of these markets have decreased with time due to lower volatility. These results have implications for high-yield investors and stakeholders who monitor Markit's CDX North American High-Yield Index for informational content.

show abstract

The economic significance of CDS price discovery

Cited by 11 publications

References 32 publications

Explaining co-movements between equity and CDS bid-ask spreads

Explaining co-movements between equity and CDS bid-ask spreads

The pricing of accruals quality in credit default swap spreads

Forecasting high‐yield equity and CDS index returns: Does observed cross‐market informational flow have predictive power?

Contact Info

Product

Resources

About