Short-Selling and Credit Default Swap Spreads — Where Do Informed Traders Trade?

Journal of Futures Markets, Vol. 38, 2018.

Posted: 9 Jun 2019

See all articles by Jin Young Yang

Jin Young Yang

Zayed University

Andrew Lepone

Macquarie University, Macquarie Business School

Jin Boon Wong

University of Sydney - Discipline of Accounting

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Steven Lecce

affiliation not provided to SSRN

Date Written: August 1, 2018

Abstract

During the global financial crisis, short‐selling and credit default swaps (CDS) gained notoriety as indicators of financial collapse. This paper extends the literature by examining the relationship between short‐selling and CDS spreads. Results indicate that lagged short‐selling metrics forecast changes in CDS spreads; short‐selling is found to have a positive relationship with CDS spreads. These results are robust to various controls including the supply of stock for short‐selling, changes in CDS spreads, cross‐sectional controls for fixed effects, sub‐group analysis by industry sector, and the use of contemporaneous explanatory variables. This suggests that informed traders prefer to short‐sell the underlying stocks.

Suggested Citation

Yang, Jin Young and Lepone, Andrew and Wong, Jin Boon and McKenzie, Michael David and Lecce, Steven, Short-Selling and Credit Default Swap Spreads — Where Do Informed Traders Trade? (August 1, 2018). Journal of Futures Markets, Vol. 38, 2018., Available at SSRN: https://ssrn.com/abstract=3392159

Jin Young Yang (Contact Author)

Zayed University ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

Andrew Lepone

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Jin Boon Wong

University of Sydney - Discipline of Accounting

H69 Economics and Business Building
Sydney, NSW 2006
Australia

Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

Level 2 9 Castlereagh Street
Sydney, NSW 2000
Australia
+61 2 9114 0578 (Phone)
+61 2 9351 6461 (Fax)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Steven Lecce

affiliation not provided to SSRN

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