News sentiment,credit spreads,and information asymmetry |
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| Institution: | 1. Department of Banking and Financial Management, University of Piraeus, Greece;2. Newcastle Business School, Northumbria University, UK;3. Lord Ashcroft International Business School, Anglia Ruskin University, UK;1. Bain & Company Germany, Karlsrplatz 1, 80799 Munich, Germany;2. U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549, USA;3. Department of Information Systems, Albert Ludwigs Universität Freiburg, Germany |
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| Abstract: | This paper examines how the sentiment of firm-specific news affects CDS spreads conditional on the degree of information asymmetry. Using a large set of news releases, we document a strong negative relationship between the sentiment of firm-specific news and CDS spreads. More importantly, consistent with the role of public news in reducing information asymmetry, we find evidence that the relation between news sentiment and CDS spreads is stronger for firms with higher information asymmetry. Furthermore, the relation is stronger for news with negative sentiment and during the 2008 financial crisis. Our results are robust to alternative sentiment measures. |
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| Keywords: | Credit default swap Credit risk News sentiment RavenPack Institutional investors |
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