Price discovery in equity and CDS markets

Kryzanowski, Lawrence; Perrakis, Stylianos; Zhong, Rui

doi:10.1016/j.finmar.2017.07.006

Cited by 18 publications

(4 citation statements)

References 40 publications

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“…More recently, Lee, Naranjo, and Velioglu () find that CDS returns significantly predict stock returns, and particularly the idiosyncratic component, and find that the jumps in CDS spreads around credit events significantly predict stock returns. Using intraday data, Kryzanowski, Perrakis, and Zhong () document that the CDS market's price‐discovery contribution increases significantly for after‐hours over‐the‐counter (OTC) trading and for negative earnings surprises. If the informed trading in the CDS market is concentrated in customers for whom credit risk is higher, we expect that suppliers’ stock return synchronicity reacts more significantly to customer CDS trading when the customers are closer to distress.…”

Section: Prior Literature and Hypotheses Developmentmentioning

confidence: 99%

The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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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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Section: Prior Literature and Hypotheses Developmentmentioning

confidence: 99%

The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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“…Adverse CDS information also affects stock investors. Batta et al (2016), Li and Tang (2016), Acharya and Johnson (2007), Kryzanowski et al (2017), Lee et al (2018), and others found that increasing CDS spreads lead to corresponding negative stock returns conditional on credit events. There is also spillover of news effects from CDS to the stock options market such as reported in Berndt and Ostrovnaya (2007).…”

Section: Introductionmentioning

confidence: 95%

“…Extant literature showed that CDS initiation and its spread changes would impact credit ratings (Acharya & Johnson, 2007;Flannery et al, 2010;Kryzanowski et al, 2017;Lee et al, 2018Lee et al, , 2021Qiu & Yu, 2012;etc.). CDS initiation, via its leading signal on credit rating or credit risk changes, would impact on firms' earnings management choices when adverse credit rating changes would be very costly for such firms.…”

Section: Introductionmentioning

confidence: 99%

CDS Channels of Influence on Discretionary Accruals

Cheng¹,

Lim

2022

Journal of Accounting, Auditing & Finance

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Existing studies indicated that firm debt holders can use the credit default swap (CDS) market to hedge their credit risk, and thus they would reduce their monitoring of the firms, leading to largely distressed firms shirking and increasing positive abnormal earnings accruals. Besides providing insurance, however, the CDS spreads also perform price discovery of credit risk information sought by trade creditors and potential lenders who are not protected. High absolute abnormal discretionary accruals or bad earnings quality, especially negative abnormal accruals, would lead adverse CDS price signals that are very costly to the firm. This compels the firm under nondistressed conditions to be able to improve cash holdings, cash flows, working capital, and earnings reporting quality. Our new results indicate that the channels of improvement in earnings quality are through a firm’s large accounts payable and low cash holdings related to trade credit exposures. In the longer run, this leads to higher profitability and improved firm value. Thus, the generation of public information via the CDS market reduces information asymmetry and can enforce greater discipline in discretionary accounts reporting.

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“…Perbedaan platform perdagangan dan strategi antara dealer dan customer menyebabkan fluktuasi imbal hasil yang tinggi. Introduction Price discovery in financial markets is very an important property, especially in the perspective of market microstructure (Martinez & Tse, 2018;Kryzanowski, Perrakis, & Zhong, 2017). Price discovery plays a very important and specific role in financial markets.…”

Section: Abstrakmentioning

confidence: 99%

Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market

Wibowo

2019

Jurnal Keuangan Dan Perbankan

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Relation of private information and yield volatility in the relatively low liquid market such as Indonesia government bond market is one of the recent important research topics in finance. Because private information accumulation mastery affects interaction pattern between dealers and their customers, it is urgent to identify this price mechanism in government bond market, especially in a low liquid market which small trading volume may create serious yield volatility. If there is a substantial disagreement on bond fair value because of distinct private information quality between each those groups of investors success to accumulate it, bond price will fluctuate wildly. This paper study the dealer and customer order flow interaction to identify which side that have a greater impact on yield volatility. The results show that from the two layers of order flow, disagreement between dealers and customers are slightly in a short-term and medium-term bond, so their volatility is relatively low. But for a long-term bond, disagreement is substantial and creates high yield volatility. Different trading platform and strategy between dealer and customer play an important role in creating high yield fluctuations. How to Cite: Wibowo, B. (2019). Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market.

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Price discovery in equity and CDS markets

Cited by 18 publications

References 40 publications

The externalities of credit default swaps on stock return synchronicity

The externalities of credit default swaps on stock return synchronicity

CDS Channels of Influence on Discretionary Accruals

Private information, yield volatility, and interaction between groups of investors: Case of Indonesia government bond market

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