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The sensitivity of the credit default swap market to financial analysts’ forecast revisions |
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| Authors: | Pervaiz Alam Xiaoling Pu Barry Hettler |
| Affiliation: | 1. Department of Accounting, College of Business Administration, Kent State University, Kent, OH, USA;2. Department of Finance, College of Business Administration, Kent State University, Kent, OH, USA;3. School of Business Administration and Economics, The College at Brockport – State University of New York, Brockport, NY, USA |
| Abstract: | We examine the impact of analysts’ earnings per share (EPS) and cash flow per share (CPS) forecast revisions on the market for credit default swaps. We find that while the issuance of both EPS and CPS forecast revisions are inversely associated with changes in credit default swap (CDS) spreads, cash flow forecast revisions have a larger effect. We demonstrate that the relationship between CPS forecast revisions and CDS spreads tends to be stronger in cases of financial distress. We provide evidence that cash flow forecasts dominate earnings forecasts in some situations and that participants in the CDS market discriminate between analysts' forecast revisions and recommendation changes. |
| Keywords: | Forecast revisions Earnings per share Cash flow per share Credit default swaps |
