The stock price effect of the introduction of exchange-traded credit derivatives

Lisa A. Schwartz, Kristin Stowe and Wayne Tarrant

Applied Financial Economics, 2013, vol. 23, issue 19, 1531-1539

Abstract: This research investigates the stock market reaction to the February 2011 announcement of a new financial product: credit event binary options (CEBOs). The CEBOs could be an alternative to credit default swaps for hedging or speculating on default. These credit options, traded on the Chicago Board Options Exchange (CBOE), pay-off only in the event of default by the underlying firm. Options were initially introduced for 10 firms from various sectors of the economy. In April 2011, additional CEBOs were introduced for five large banks. This study finds that the announcement of the binary options did not have a significant negative effect on the stock prices of the underlying firms. These firms did have a significant negative cumulative abnormal return over the entire event window surrounding option announcement. Analysis of trading volume finds that the majority of the CEBOs did not trade at all during the first 110 days after listing. Results indicate that market participants are not utilizing exchange-traded credit options for hedging credit exposure or speculating on credit default.

Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2013.835477 (text/html)
Access to full text is restricted to subscribers.

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:taf:apfiec:v:23:y:2013:i:19:p:1531-1539

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2013.835477

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().