How Do Corporate Factors Affect Price Discovery Process Between Equity and Credit Markets?

Xinquan Zhou (), Guillaume Bagnarosa () and Mark Cummins
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Xinquan Zhou: WHUT - Wuhan University of Technology
Guillaume Bagnarosa: AGR - Agribusiness - Rennes School of Business - Rennes SB - Rennes School of Business, SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement
Mark Cummins: University of Strathclyde [Glasgow]

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Abstract: We conduct price discovery analysis to investigate the lead–lag relationship between equity and CDS markets within a corporate finance framework. Based on a sample of 89 firms covering investment‐grade and high‐yield firms, we detect stationarity and cointegration within a panel framework associated with nine corporate financial characteristic factors. With an expectation maximisation Kalman filter applied to deal with non‐synchronicity and microstructure noise in 1‐min data, we verify its practicability in addressing the issue of missing data in a high‐frequency modelling setting. We demonstrate that the price discovery process is more credit market driven when a company's credit risk increases, which is significantly more prominent for small‐sized firms with highly volatile equity prices and increasing default probability.

Keywords: Price discovery; High frequency; Financial market microstructure; Equity; Credit default swap (search for similar items in EconPapers)
Date: 2025-11-11
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Published in Accounting and Finance, 2025, 66 (1), pp.551-574. ⟨10.1111/acfi.70116⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05562524

DOI: 10.1111/acfi.70116

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