Skip to main content
Article thumbnail
Location of Repository

CREDIT RISK DISCOVERY IN THE STOCK AND CDS MARKET: WHO, WHEN AND WHY LEADS? *

By Santiago Forte and Lidija Lovreta

Abstract

This paper analyzes the dynamic relationship between CDS spreads and stock market implied credit spreads (ICS) for a large international set of companies during the period 2002-2004. We find the relationship between these credit spread measures to be stronger, and the probability of the stock market leading credit risk discovery to be higher, at the lower credit quality levels. However, consistent with the argument of insider trading in credit derivatives, we document a positive relationship between the frequency of severe credit downturns and the probability of the CDS market leading price discovery. Apart from these findings, our results suggest a slight informational dominance of the stock market that declines over time. Key words: Credit risk, credit default swap, price discovery Work in progress: preliminary and incomplete

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.353.2210
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://citeseerx.ist.psu.edu/v... (external link)
  • http://www.finance-innovation.... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.