Price Discovery in Equity and CDS Markets

Information and component shares metrics are used to study the price discovery contributions of equity and credit default swap (CDS) markets for North American firms with intraday data. While the discovery metrics are generally not significantly different from 50% for each market, the CDS market’s contribution always increases strongly and significantly for negative earnings surprises, especially with high firm-specific uncertainty. After-hours OTC trading enhances price discovery in the CDS market. The relative metrics react strongly and significantly to several macroeconomic announcements, with some evidence that such macro surprises are associated with greater relative price discovery in the CDS market.

Keywords: Price discovery; Information shares; Information shock

JEL Classification: E44; G10; G14

Suggested Citation: Suggested Citation

Kryzanowski, Lawrence and Perrakis, Stylianos and Zhong, Rui, Price Discovery in Equity and CDS Markets (May 14, 2017). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2841618 or http://dx.doi.org/10.2139/ssrn.2841618