EconPapers    
Economics at your fingertips  
 

Price discovery in CDS and equity markets: Default risk-based heterogeneity in the systematic investment grade and high yield sectors

William J. Procasky

Journal of Financial Markets, 2021, vol. 54, issue C

Abstract: I examine systematic credit default swap (CDS) and equity markets using investment grade and high yield Markit CDX indices and matched equity portfolios within a vector autoregressive (VAR), asymmetrical Granger causality, and vector autoregressive moving average (VARMA) framework to ascertain whether one market has an advantage over the other in pricing in new information. Contrary to the investment grade sector in which neither the CDS nor the equity market is observed to have an advantage, a strong two-way interactive effect is documented in the high yield sector, indicating certain information is impounded more efficiently by each market, with the CDS’ advantage more pronounced under adverse market conditions and in the bellwether CDX.NA.HY index. These findings indicate investors trade high yield CDS indices much differently than investment grade.

Keywords: Credit derivatives; Credit spreads; Market efficiency; Price discovery; Lead-lag relationship; CDS indices (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 G14 G23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418120300501
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300501

DOI: 10.1016/j.finmar.2020.100581

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-07-31
Handle: RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300501