Price discovery in equity and CDS markets

Lawrence Kryzanowski, Stylianos Perrakis () and Rui Zhong ()

Journal of Financial Markets, 2017, vol. 35, issue C, 21-46

Abstract: Price discovery contributions of equity and credit default swap (CDS) markets for U.S. firms with intraday data in 2009–2013 are examined using information and component shares metrics. Particular attention is paid to the drawbacks of these metrics because of unobservable factors such as microstructure noise and model error. While no market generally exhibits a price-discovery advantage, the CDS market's contribution increases strongly and significantly for after-hours OTC trading and for negative earnings surprises, especially with high firm-specific uncertainty. We provide some evidence that surprises contained in various macroeconomic announcements are associated with greater relative price discovery in the CDS market.

Keywords: Price discovery; Information Shares; Information shocks (search for similar items in EconPapers)
JEL-codes: E44 G10 G14 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:35:y:2017:i:c:p:21-46

DOI: 10.1016/j.finmar.2017.07.006

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