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Market integration and efficiency of CDS and equity markets

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

Offizielle URL: http://dx.doi.org/10.1016/j.qref.2016.02.010

Kurzbeschreibung (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.

Typ des Eintrags: Artikel
Erschienen: 2016
Autor(en): Kiesel, F. ; Kolaric, S. ; Schiereck, D.
Titel: Market integration and efficiency of CDS and equity markets
Sprache: Englisch
Kurzbeschreibung (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.

Titel der Zeitschrift, Zeitung oder Schriftenreihe: The Quarterly Review of Economics and Finance
(Heft-)Nummer: 61
Verlag: Elsevier
Freie Schlagworte: Credit event; Credit default swap; Market performance; Market efficiency; Market integration
Fachbereich(e)/-gebiet(e): 01 Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete
01 Fachbereich Rechts- und Wirtschaftswissenschaften > Betriebswirtschaftliche Fachgebiete > Fachgebiet Unternehmensfinanzierung
01 Fachbereich Rechts- und Wirtschaftswissenschaften
Hinterlegungsdatum: 18 Feb 2016 23:10
Offizielle URL: http://dx.doi.org/10.1016/j.qref.2016.02.010
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