Multi-Market Trading and the Dynamics between Credit and Equity Returns

80 Pages Posted: 16 Sep 2015 Last revised: 21 Jul 2018

Patrick Augustin

McGill University, Desautels Faculty of Management

Feng Jiao

University of Lethbridge - Faculty of Management

Sergei Sarkissian

McGill University; Yerevan State University

Michael J. Schill

University of Virginia ­ Darden School of Business

Date Written: April 18, 2017

Abstract

We study how trading in multiple markets affects the dynamics between firms’ credit default swap (CDS) and stock returns. We find that cross-listing increases (i) the sensitivity of CDS to stock returns (hedge ratios); (ii) the integration of CDS with world equity and bond markets; and (iii) the statistical synchronicity of CDS and stock prices. Our results are stronger for firms with greater media attention, analyst and CDS coverage, Google search intensity, and for listings in familiar markets. This suggests that a firm’s presence in global equity markets is instrumental in improving its credit-equity integration by reducing informational frictions.

Keywords: G12, G13, G14, G15

JEL Classification: Investor recognition; Limits to arbitrage; Return co-movement; Risk premium

Suggested Citation

Augustin, Patrick and Jiao, Feng and Sarkissian, Sergei and Schill, Michael J., Multi-Market Trading and the Dynamics between Credit and Equity Returns (April 18, 2017). Darden Business School Working Paper No. 2660829. Available at SSRN: https://ssrn.com/abstract=2660829 or http://dx.doi.org/10.2139/ssrn.2660829

Patrick Augustin

McGill University, Desautels Faculty of Management ( email )

1001 Sherbrooke Street West
Quebec
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://www.patrickaugustin.se

Feng Jiao

University of Lethbridge - Faculty of Management ( email )

4401 University Drive
Lethbridge, Alberta TIK 3M4
Canada

Sergei Sarkissian (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

Yerevan State University

1 Alex Manoogian Street
Yerevan, 0025
Armenia

Michael J. Schill

University of Virginia ­ Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm

Register to save articles to
your library

Register

Paper statistics

Downloads
180
rank
154,349
Abstract Views
1,019
PlumX