Abstract

http://ssrn.com/abstract=1652779
 
 

Citations



 


 



The Credit Default Swap Market's Reaction to Earnings Announcements


Caitlin Ann Greatrex


Fordham University - Department of Economics

2009

Journal of Applied Finance, Spring/Summer 2009, Vol. 19, Issue 1/2, pp. 193-216

Abstract:     
This paper examines the CDS market's response to earnings announcements. The results indicate that earnings announcements contain valuable information with statistically significant announcement date effects. Additionally, the CDS market anticipates negative earnings surprises as prices begin to adjust prior to the actual announcement date. The market responds more strongly to negative news than to positive news and the magnitude of the response is proportional to the magnitude of the deviation from analysts' expectations. Lower credit quality firms generally exhibit stronger reactions to earnings surprises. Using cross-sectional regressions to further test the magnitude and credit quality effects, only the magnitude effect was confirmed. The CDS market's reaction to earnings information is not entirely efficient as the market seems to overreact to negative earnings news. However, the presence of any apparent inefficiencies is sensitive to the choice of model used to measure normal performance, the categorization of earnings, and the presence of extreme observations. The percent deviation from analysts' estimates must be quite large to elicit a meaningful reaction in the CDS market.

Accepted Paper Series





Not Available For Download

Date posted: July 27, 2012  

Suggested Citation

Greatrex, Caitlin Ann, The Credit Default Swap Market's Reaction to Earnings Announcements (2009). Journal of Applied Finance, Spring/Summer 2009, Vol. 19, Issue 1/2, pp. 193-216. Available at SSRN: http://ssrn.com/abstract=1652779

Contact Information

Caitlin Ann Greatrex (Contact Author)
Fordham University - Department of Economics ( email )
441 E Fordham Rd
Dealy Hall
Bronx, NY 10458
United States
HOME PAGE: http://www.fordham.edu/economics
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