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

October 21, 2014

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

Abstract:     
This paper offers the first systematic analysis of the role of credit default swaps (CDS) in information production surrounding earnings announcements. First, we demonstrate that the strength of CDS price discovery prior to earnings announcements is related to the presence of private information, as well as the illiquidity of the underlying corporate bonds. These results are robust to the inclusion/exclusion of the recent financial crisis. Next, we ask whether the information revealed through CDS trading has any bearing on analyst forecast characteristics. We find that forecast dispersion and forecast error are reduced following the commencement of CDS trading, which is consistent with the CDS market conveying information that can help improve the accuracy of forecasts and reduce the difference of opinions among analysts.

Number of Pages in PDF File: 48

Keywords: credit derivatives, earnings announcements, price discovery, forecast characteristics

JEL Classification: D82, G13, G14

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Date posted: March 11, 2012 ; Last revised: October 26, 2014

Suggested Citation

Batta, George E. and Qiu, Jiaping and Yu, Fan, Credit Derivatives and Earnings Announcements (October 21, 2014). 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, Ontario L8S 4M4
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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