Abstract

http://ssrn.com/abstract=2019807
 
 

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Credit Derivatives and Earnings Announcements


George E. Batta


Claremont McKenna College - Robert Day School of Economics and Finance

Jiaping Qiu


McMaster University - Michael G. DeGroote School of Business

Fan Yu


Claremont McKenna College - Robert Day School of Economics and Finance

April 22, 2013

Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2012-03

Abstract:     
We examine price discovery in the single-name credit default swap (CDS) market, focusing on the role of private information before quarterly earnings announcements. We find that the speed of CDS price discovery and the strength of incremental CDS price discovery relative to stocks are positively related to analyst forecast dispersion, idiosyncratic volatility, and the presence of earnings-based covenants in the obligor’s syndicated loans. Similar characteristics also help explain the level and variation of CDS liquidity before earnings announcements. These findings suggest that private information facilitates CDS price discovery and liquidity provision, highlighting an important trade-off for the Dodd-Frank Act, which imposes greater transparency in the over-thecounter derivatives market.

Number of Pages in PDF File: 40

Keywords: credit derivatives, earnings announcements, price discovery, CDS liquidity

JEL Classification: D82, G13, G14

working papers series


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Date posted: March 11, 2012 ; Last revised: May 11, 2013

Suggested Citation

Batta, George E. and Qiu, Jiaping and Yu, Fan, Credit Derivatives and Earnings Announcements (April 22, 2013). Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2012-03. Available at SSRN: http://ssrn.com/abstract=2019807 or http://dx.doi.org/10.2139/ssrn.2019807

Contact Information

George E. Batta
Claremont McKenna College - Robert Day School of Economics and Finance ( email )
500 E. Ninth Street
Claremont, CA 91711
United States
Jiaping Qiu
McMaster University - Michael G. DeGroote School of Business ( email )
1280 Main Street West
Hamilton, L8S 4M4 Ontario
Canada
Fan Yu (Contact Author)
Claremont McKenna College - Robert Day School of Economics and Finance ( email )
500 E. Ninth St.
Claremont, CA 91711-6420
United States
(909)607-3345 (Phone)
HOME PAGE: http://www.cmc.edu/academic/faculty/profile.asp?Fac=553
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