Information in CDS Spreads
47 Pages Posted: 2 Jun 2008 Last revised: 26 Mar 2014
Date Written: March 12, 2014
We investigate how public and private information drives corporate CDS spreads before rating announcements. We find that CDS spreads of firms with higher news intensity move significantly earlier and stronger before rating announcements, which can be explained with public information from daily wire news. We also find that private information of banks matters. CDS spread changes are larger for firms with more banks and days with no news but large abnormal CDS spread changes are more frequent before negative announcements than before positive ones. The evidence highlights the important role of CDS in processing public and private credit information.
Keywords: Informational efficiency, Credit default swaps, Corporate news, Insider trading, Bank relationships
JEL Classification: D80, G10, G14, G20
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