Multi-Market Trading and the Dynamics between Credit and Equity Returns
80 Pages Posted: 16 Sep 2015 Last revised: 21 Jul 2018
Date Written: April 18, 2017
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: Suggested Citation