The externalities of credit default swaps on stock return synchronicity |
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Authors: | Ran Zhao Lu Zhu |
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Affiliation: | 1. Peter F. Drucker and Masatoshi Ito School of Management, Claremont Graduate University, Claremont, California;2. Department of Finance, College of Business, California State University, Long Beach, California |
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Abstract: | We examine the externality effect of customer firms’ credit default swap (CDS) trading on the stock price informativeness of supplier firms. Our empirical results show that firms with a high proportion of sales to CDS referenced customers tend to have more firm-specific embedded information in their stock prices and thus higher stock price informativeness, which is associated with a lower level of stock return synchronicity. We provide new evidence of CDS trading externality on equity market information environments along the supply chain. |
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Keywords: | credit default swaps customer–supplier relationship externalities information spillover stock return synchronicity |
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