The impact of trade reporting and central clearing on CDS price informativeness

Marra, Miriam; Yu, Fan; Zhu, Lei

doi:10.1016/j.jfs.2019.07.002

Cited by 15 publications

(6 citation statements)

References 27 publications

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“…Finally, acknowledging that firms with different levels of CDS trading can fundamentally differ from each other, we exploit the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act (hereafter the Dodd–Frank Act) in July 2010 as an exogenous shock to customers’ informed trading in the CDS market. The Dodd–Frank Act changes the existing regulatory structure, increases oversight of systemic risk, and promotes information transparency, consequently reducing informed trading activities (Loon & Zhong, 2014, 2016; Marra et al., 2019). In line with this notion, we find that the relation between customer CDS trading and supplier subsequent stock returns is mitigated after the Dodd–Frank Act implementation.…”

Section: Introductionmentioning

confidence: 99%

Cross‐market information transmission along the supply chain network

Fang

Liang

et al. 2023

Production and Operations Management

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In this paper, we investigate whether and how investors of suppliers learn from the private information embedded in the customer credit default swap (CDS) market prior to customer earnings announcements. We find that investors of suppliers indeed incorporate the customer private information revealed in the CDS market into the supplier valuation, thereby leading to significant changes in suppliers' future stock prices. Moreover, such price discovery effect is more pronounced when: (i) the level of customer private information revealed in the CDS market is more prominent; (ii) the customer bond market is more illiquid; (iii) the customers are expected to report bad earnings news or experience deteriorated credit conditions; (iv) the strength of the suppliercustomer economic bond is stronger. Our results remain robust when we control for the supplier's own CDS market price discovery effect or conduct matched sample analyses. Finally, utilizing the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as an exogenous shock, we show that the effect of customer CDS trading on suppliers' future stock prices is less pronounced after the Dodd-Frank Act due to more explicit regulation on informed trading activities. Overall, our study documents significant cross-market information transmission along the supply chain network (i.e., from the customer derivative market to the supplier equity market).

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Section: Introductionmentioning

confidence: 99%

Cross‐market information transmission along the supply chain network

Fang

Liang

et al. 2023

Production and Operations Management

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“…After the 2008 financial crisis, new regulations enhancing reporting and transparency of CDS trades (e.g., mandatory trade execution on exchanges and central clearing) were introduced in the United States (the Dodd-Frank Act) and Europe (European Market Infrastructure Regulation). Recent studies claim that these regulations reduced the informational advantage of the single-name corporate CDSs vis-a-vis stocks (e.g., Marra, Yu, and Zhu, 2019 ).…”

Section: Resultsmentioning

confidence: 99%

COVID-19 Pandemic and Global Corporate CDS Spreads

Hasan

Marra

et al. 2023

Journal of Banking & Finance

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“…They find a stationary long-run equilibrium relationship between volatility indices in which the CDS implied index plays the leading role. Also, Marra et al (2019) find that the magnitude of CDS market information declined after recent reforms that increased the level of post-trade regulatory and market transparency for CDSs. They also state that the ability of this CDS-unique information to predict future stock returns decreased and the CDS market has become less of a hidden trading venue for informed investors.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 93%

Investor behavior, stock returns and CDS spreads: evidence from foreign and domestic investors in Korea

Yang

Samitas

Kampouris

2020

IJMF

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PurposeThis study investigates the dynamic relationships among trading behaviors of different investor groups (foreigners, domestic institutions and domestic individuals), stock returns and sovereign CDS (Credit Default Swap) spreads in Korea.Design/methodology/approachWe employ the VAR (Vector autoregression) model to examine the dynamic relationships between CDS spread changes, stock returns and investors' behavior in the stock market.FindingsThe CDS spread change (stock return) declines (rises) in response to shocks to net foreign flows into the stock market on the same day. Foreigners buy stocks more intensely one day after an increase in the stock return, but they do not respond to CDS spread changes. Domestic individuals trade in the opposite direction of foreigners in response to shocks to both stock returns and CDS spread changes on the same day. Positive net stock purchases of domestic institutions (individuals) predict positive (negative) stock returns and negative (positive) CDS spread changes next day.Originality/valueThis study extends prior studies by examining how different investor groups' trading behaviors in the stock market are associated with not only the stock market but also a closely related market (CDS market). Prior empirical studies on the relation between the stock and CDS markets do not pay attention to possible heterogeneity in trading behavior across different types of investors in the stock market.

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The impact of trade reporting and central clearing on CDS price informativeness

Cited by 15 publications

References 27 publications

Cross‐market information transmission along the supply chain network

Cross‐market information transmission along the supply chain network

COVID-19 Pandemic and Global Corporate CDS Spreads

Investor behavior, stock returns and CDS spreads: evidence from foreign and domestic investors in Korea

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