Abstract

http://ssrn.com/abstract=1991179
 
 

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The Information Content of Cross-Market Deviations in Option Prices and Credit Default Swap Spreads


Georgios Angelopoulos


Athens University of Economics and Business - Department of Accounting and Finance

Daniel Giamouridis


Athens University of Economics and Business; City University London - Cass Business School - Faculty of Finance; EDHEC Risk Institute

Georgios Nikolakakis


Athens University of Economics and Business - Department of Accounting and Finance

July 1, 2013


Abstract:     
Cross-market deviations in equity put option prices and credit default swap spreads are temporal and revert to their usual level shortly after they occur, on average within about one week. The process of reversion involves predictable and economically significant changes also in the equity values of the reference firm, thus empirically supporting the theoretical linkage of the three markets. Cross-market deviations occur for firms with high information uncertainty and are not created equally. Firms with unusually more expensive credit than equity insurance are likely to experience informed trading in their credit insurance contract. However, we attribute instances of unusually expensive equity insurance to belief heterogeneity.

Number of Pages in PDF File: 51

Keywords: credit equity market integration, equity return predictability, capital structure arbitrage

JEL Classification: G11, G12, G13, G14, D8

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Date posted: January 25, 2012 ; Last revised: July 12, 2013

Suggested Citation

Angelopoulos, Georgios and Giamouridis, Daniel and Nikolakakis, Georgios, The Information Content of Cross-Market Deviations in Option Prices and Credit Default Swap Spreads (July 1, 2013). Available at SSRN: http://ssrn.com/abstract=1991179 or http://dx.doi.org/10.2139/ssrn.1991179

Contact Information

Georgios Angelopoulos
Athens University of Economics and Business - Department of Accounting and Finance ( email )
76 Patission Street
GR-104 34 Athens
Greece
Daniel Giamouridis (Contact Author)
Athens University of Economics and Business ( email )
Department of Accounting and Finance
76 Patission Street
Athens, 10434
Greece
+30 210 820 3925 (Phone)
+30 210 820 3936 (Fax)
HOME PAGE: http://www.aueb.gr/users/dgiamour/
City University London - Cass Business School - Faculty of Finance ( email )
London, EC2Y 8HB
Great Britain
EDHEC Risk Institute ( email )
Lille
France
Georgios Nikolakakis
Athens University of Economics and Business - Department of Accounting and Finance ( email )
76 Patission Street
GR-104 34 Athens
Greece
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