The Relative Informational Efficiency of Stocks, Options and Credit Default Swaps

Lamia Bekkour (), Thorsten Lehnert and Maria Chiara Amadari ()
Additional contact information
Lamia Bekkour: Luxembourg School of Finance, University of Luxembourg
Maria Chiara Amadari: School of Business and Economics, Maastricht University

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: In this study, we investigate the dynamics behind informed investors’ trading decisions among European stock, options and credit default swap markets. This allows us to identify the predictive explanatory power of the unique information contained in each market with respect to future stock, CDS and option market movements. A lead-lag relation is found between the options and CDS market in which changes in equity options’ implied volatility are able to consistently forecast changes in CDS spreads pointing out how the option market seems to play a special role in the price discovery process even in the presence of a very fast growing competitive market like the CDS market. Moreover, in contrast to US results, the stock market is found to forecast changes in the other two markets suggesting that investors first prefer stock market involvement to exploit their information advantages and then move to CDS and option markets. Although this is the case, the CDS market seems to gain importance in the price discovery process as firms’ become more risky.

Keywords: Credit default swap spread; option-implied volatility; lead-lag relationship; price discovery; informed trading. (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.lsf.lu/index.php/eng/content/download/2671/13224/file/11-04.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.lsf.lu:80 (nodename nor servname provided, or not known)

Related works:
Working Paper: The Relative Informational Efficiency of Stocks, Options and Credit Default Swaps (2011)
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:crf:wpaper:11-04

Access Statistics for this paper

More papers in LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg Contact information at EDIRC.
Bibliographic data for series maintained by Martine Zenner ( this e-mail address is bad, please contact ).