Information in CDS spreads |
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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. Department of Economics, University of Calabria, Rende CS, Italy;2. The Business School, Bangor University, Bangor LL57 2DG, UK |
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Abstract: | We investigate how public and private information affects corporate CDS spreads prior to rating announcements. First, CDS spreads of firms with high news intensity change significantly earlier and more strongly prior to negative rating announcements than those of firms with low news intensity. Second, the contents of daily corporate news significantly influence the direction in which the CDS spreads move. Third, CDS spreads change more strongly for firms with more bank relationships and days with no news but large abnormal CDS spread changes are more frequent prior to negative rating announcements than prior to positive ones. The study provides new evidence on the informational efficiency of the CDS market, the impact of credit rating announcements, and insider trading. |
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