Price Discovery in Equity and CDS Markets
61 Pages Posted: 22 Sep 2016 Last revised: 6 Jun 2017
Date Written: May 14, 2017
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