Market integration and efficiency of CDS and equity markets

Florian Kiesel, Sascha Kolaric and Dirk Schiereck

The Quarterly Review of Economics and Finance, 2016, vol. 61, issue C, 209-229

Abstract: We test the market integration and efficiency of credit default swap (CDS) and equity markets by examining the CDS spreads of 538 US and European firms around unanticipated and sudden credit events (CEs) from 2010 to 2013. We find evidence that stock markets react prior to CDS markets, anticipating CEs to a certain extent. In particular, we find that equity returns during the two days prior to a CE have a highly significant influence on the observed CDS spread change on the day of the CE, indicating that both markets are not fully integrated yet. In addition, we find evidence that CDS spread changes display continuation patterns following positive CEs and reversal patterns following negative CEs. These patterns are in line with the Uncertain Information Hypothesis, suggesting that CDS markets are efficient, albeit lagging equity markets to a certain extent.

Keywords: Credit event; Credit default swap; Market performance; Market efficiency; Market integration (search for similar items in EconPapers)
JEL-codes: G01 G10 G14 G18 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976916000247
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:quaeco:v:61:y:2016:i:c:p:209-229

DOI: 10.1016/j.qref.2016.02.010

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().