Accounting Information Releases and CDS Spreads
University of Iowa - Henry B. Tippie College of Business
University of Houston - C.T. Bauer College of Business
McGill University - Desautels Faculty of Management
University of Toronto - Rotman School of Management
January 19, 2012
Midwest Finance Association 2012 Annual Meetings Paper
We show that accounting information releases generate large and immediate price impacts, i.e. jumps, in credit default swap (CDS) spreads. Our approach is multivariate, which allows for identification of information events under the presence of confounding news, such as credit events and other simultaneous news arrivals. The economic impact of accounting news releases is twice as large as the impact of credit-related news. Good and bad news impact jumps in CDS spreads asymmetrically, and unscheduled announcements are more likely to cause jumps than scheduled ones. The arrival of accounting information is quickly absorbed in CDS spreads, suggesting efficient price discovery in the CDS market.
Number of Pages in PDF File: 48
Keywords: Accounting information; CDS; jumps; market integration
JEL Classification: G10; G29working papers series
Date posted: June 29, 2011 ; Last revised: March 17, 2012
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