TU Darmstadt / ULB / TUbiblio

Market integration and efficiency of CDS and equity markets

Kiesel, F. and Kolaric, S. and Schiereck, D. (2016):
Market integration and efficiency of CDS and equity markets.
In: The Quarterly Review of Economics and Finance, Elsevier, pp. 209-229, (61), ISSN 1062-9769, [Online-Edition: http://dx.doi.org/10.1016/j.qref.2016.02.010],
[Article]

Abstract

We test the market integration and efficiency of credit default swap (CDS) and equity markets by examining the CDS spreads of 538 US and European firms around unanticipated and sudden credit events (CEs) from 2010 to 2013. We find evidence that stock markets react prior to CDS markets, anticipating CEs to a certain extent. In particular, we find that equity returns during the two days prior to a CE have a highly significant influence on the observed CDS spread change on the day of the CE, indicating that both markets are not fully integrated yet. In addition, we find evidence that CDS spread changes display continuation patterns following positive CEs and reversal patterns following negative CEs. These patterns are in line with the Uncertain Information Hypothesis, suggesting that CDS markets are efficient, albeit lagging equity markets to a certain extent.

Item Type: Article
Erschienen: 2016
Creators: Kiesel, F. and Kolaric, S. and Schiereck, D.
Title: Market integration and efficiency of CDS and equity markets
Language: English
Abstract:

We test the market integration and efficiency of credit default swap (CDS) and equity markets by examining the CDS spreads of 538 US and European firms around unanticipated and sudden credit events (CEs) from 2010 to 2013. We find evidence that stock markets react prior to CDS markets, anticipating CEs to a certain extent. In particular, we find that equity returns during the two days prior to a CE have a highly significant influence on the observed CDS spread change on the day of the CE, indicating that both markets are not fully integrated yet. In addition, we find evidence that CDS spread changes display continuation patterns following positive CEs and reversal patterns following negative CEs. These patterns are in line with the Uncertain Information Hypothesis, suggesting that CDS markets are efficient, albeit lagging equity markets to a certain extent.

Journal or Publication Title: The Quarterly Review of Economics and Finance
Number: 61
Publisher: Elsevier
Uncontrolled Keywords: Credit event; Credit default swap; Market performance; Market efficiency; Market integration
Divisions: 01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete
01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete > Corporate finance
01 Department of Law and Economics
Date Deposited: 18 Feb 2016 23:10
Official URL: http://dx.doi.org/10.1016/j.qref.2016.02.010
Export:

Optionen (nur für Redakteure)

View Item View Item