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

Lamia Bekkour (), Thorsten Lehnert and Maria Chiara Amadori
Additional contact information
Maria Chiara Amadori: LSF

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 CDS market and the other markets, in which changes in CDS spreads are able to consistently forecast changes in stock prices and equity options implied volatilities pointing out how the fast growing CDS market seems to play a special role in the price discovery process. Moreover, in contrast to US results, the stock market is found to forecast changes in the other two markets suggesting that investors also prefer stock market involvement to exploit their information advantages and then move to CDS and option markets. Interestingly, those patterns have only emerged during the recent financial crisis, while before the crisis the option market was found to be of major importance in the price discovery process.

Keywords: Credit default swap spread; option-implied volatility; lead-lag relationship; price (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://wwwen.uni.lu/content/download/53157/634720/ ... waps_2011%20(13).pdf (application/pdf)

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:11-13

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 ).