News sentiment, credit spreads, and information asymmetry

Shanxiang Yang, Zhechen Liu and Xinjie Wang

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: This paper examines how the sentiment of firm-specific news affects CDS spreads conditional on the degree of information asymmetry. Using a large set of news releases, we document a strong negative relationship between the sentiment of firm-specific news and CDS spreads. More importantly, consistent with the role of public news in reducing information asymmetry, we find evidence that the relation between news sentiment and CDS spreads is stronger for firms with higher information asymmetry. Furthermore, the relation is stronger for news with negative sentiment and during the 2008 financial crisis. Our results are robust to alternative sentiment measures.

Keywords: Credit default swap; Credit risk; News sentiment; RavenPack; Institutional investors (search for similar items in EconPapers)
JEL-codes: D82 G10 G12 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940820300760

DOI: 10.1016/j.najef.2020.101179

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