Global Financial Crisis and Price Discovery between Credit Default Swaps Premia and Bond Yield Spreads
46 Pages Posted: 25 Aug 2017
Date Written: August 23, 2017
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: Suggested Citation