Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87299
Authors: 
Marsh, Ian W.
Wagner, Wolf
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-033/2/DSF33
Abstract: 
We analyse daily lead-lag patterns in US equity and credit default swap (CDS) returns. We first document that equity returns robustly lead CDS returns. However, we find that the CDS-lag is due to common (and not firm-specific) news and arises predominantly in response to positive (instead of negative) equity market news. We provide an explanation for this news-specific price discovery based on dealers in the CDS market exploiting their informational advantage vis-à-vis institutional investors with hedging demands. In support of this explanation we find that the CDS-lag and its news-specificity are related to various firm-level proxies for hedging demand in the cross-section as well measures for economy-wide informational asymmetries over time.
Subjects: 
price discovery
hedging demand
CDS markets
equity markets
JEL: 
G1
G12
G14
Document Type: 
Working Paper

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