Asymmetric information in the equity market and information flow from the equity market to the CDS market
Tong Suk Kim and
Yuen Jung Park
Journal of Financial Markets, 2021, vol. 55, issue C
We investigate whether asymmetric information in the equity market affects the information flow from the equity market to the credit default swap (CDS) market. We find that the response to stock price changes is larger if they are more informative. Moreover, firms with a lower CDS bid–ask spread are associated with a more rapid response. Our results suggest that asymmetric information in the equity market mainly impacts cross-sectional differences in the total response of the CDS market. Our evidence indicates that this effect is amplified when sentiment-driven trading declines in the equity market or transaction costs are low in the CDS market.
Keywords: Information flow; CDS; Equity; Information environment (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:55:y:2021:i:c:s1386418120300768
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