Accounting Information Releases and CDS Spreads
48 Pages Posted: 29 Jun 2011 Last revised: 17 Mar 2012
Date Written: January 19, 2012
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.
Keywords: Accounting information; CDS; jumps; market integration
JEL Classification: G10; G29
Suggested Citation: Suggested Citation