M&A operations: Further evidence of informed trading in the CDS market

Paulo Silva, Isabel Vieira () and Carlos Vieira

Journal of Multinational Financial Management, 2015, vol. 32-33, 116-130

Abstract: Previous studies showed that private information gathered through banking services such as loans and syndicated debt is incorporated into CDS rates by large banks. Additionally, there is also evidence that innovations in CDS rates precede stock market returns prior to credit events. This paper adds to the literature by showing that the information obtained by major banks while providing M&A investment banking services is assimilated by CDS rates prior to the operation announcement. We also find strong supportive evidence that CDS innovations have incremental predictive power over stock returns before M&A announcements, and that this predictive power may be even greater when major dealers in the CDS market supplied investment banking services to one of the parts of the deal.

Keywords: Credit default swaps; Information flow; Informed trading; Price discovery; M&A activity (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G20 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:32-33:y:2015:i::p:116-130

DOI: 10.1016/j.mulfin.2015.10.002

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