News Sentiment, Credit Spreads, and Information Asymmetry

North American Journal of Economics and Finance, Forthcoming

50 Pages Posted: 10 Aug 2018 Last revised: 29 Feb 2020

See all articles by Shanxiang Yang

Shanxiang Yang

West Virginia University - Department of Finance

Zhechen Liu

Southern University of Science and Technology

Xinjie Wang

Southern University of Science and Technology

Date Written: November 21, 2019

Abstract

This paper examines how the sentiment of firm-specific news affects CDS spreads conditional on the degree of information asymmetry. Using a large set of news releases, we document a strong negative relationship between the sentiment of firm-specific news and CDS spreads. More importantly, consistent with the role of public news in reducing information asymmetry, we find evidence that the relation between news sentiment and CDS spreads is stronger for firms with higher information asymmetry. Furthermore, the relation is stronger for news with negative sentiment and during the 2008 financial crisis. Our results are robust to alternative sentiment measures.

Keywords: credit default swap, credit risk, news sentiment

JEL Classification: G10, G12, G14

Suggested Citation

Yang, Shanxiang and Liu, Zhechen and Wang, Xinjie, News Sentiment, Credit Spreads, and Information Asymmetry (November 21, 2019). North American Journal of Economics and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3220291 or http://dx.doi.org/10.2139/ssrn.3220291

Shanxiang Yang

West Virginia University - Department of Finance ( email )

Morgantown, WV 26506
United States

Zhechen Liu

Southern University of Science and Technology ( email )

No 1088, xueyuan Rd.
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Xinjie Wang (Contact Author)

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
218
Abstract Views
1,995
rank
190,341
PlumX Metrics