Global Financial Crisis and Price Discovery between Credit Default Swaps Premia and Bond Yield Spreads

46 Pages Posted: 25 Aug 2017

See all articles by Ekaterina Klenina

Ekaterina Klenina

University of Greenwich - Accounting and Finance

Cesario Mateus

University of Roehampton

Date Written: August 23, 2017

Abstract

This paper examines the relationship between CDS and bond markets in the context of the financial crisis by employing daily data between January 2007 and September 2014. To the best of our knowledge this is the first study that analyses the incorporation of new information for CDSs and bonds quoted in British pound from the viewpoint of price discovery process. A lead-lag relation is found between the markets, in which changes in CDS premia consistently forecast changes in bond spreads. Moreover, it was found less bond market reaction for an increase on the insurance premium to investment grade bonds.

Keywords: Credit Default Swap, bonds, financial crisis, price discovery, market efficiency

JEL Classification: G01, G14, G15

Suggested Citation

Klenina, Ekaterina and Mateus, Cesario, Global Financial Crisis and Price Discovery between Credit Default Swaps Premia and Bond Yield Spreads (August 23, 2017). Available at SSRN: https://ssrn.com/abstract=3025003 or http://dx.doi.org/10.2139/ssrn.3025003

Ekaterina Klenina

University of Greenwich - Accounting and Finance ( email )

United Kingdom

Cesario Mateus (Contact Author)

University of Roehampton ( email )

Roehampton Lane
London, SW15 5PU
United Kingdom

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