Public News and Market Liquidity: Evidence from the CDS Market

41 Pages Posted: 30 Dec 2019

See all articles by Wei-Fong Pan

Wei-Fong Pan

Department of Economics, University of Reading

Xinjie Wang

Southern University of Science and Technology

Shanxiang Yang

Southern University of Science and Technology

Jinfan Zhang

International Monetary Fund

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: December 7, 2019

Abstract

This paper examines the effects of public news releases on the market liquidity in one of the most important OTC derivatives markets — the CDS market. We document that, at the time of news releases, the bid-ask spread is wider, the number of quotes is larger, and the number of dealers is greater. Earnings announcements have particularly strong effects on liquidity while news related to credit ratings has no significant effects. Moreover, the bid-ask spread only increases on news release days and reverts to normal levels several days after news releases. Finally, the effect of news on liquidity is stronger for negative, fundamental, and unscheduled news, and is more pronounced among firms with higher information asymmetry. Our findings are consistent with models of rational trade in Kim and Verrecchia (1994).

Keywords: credit default swap, liquidity, news coverage, news sentiment, institutional investors

JEL Classification: G10, G12, G14

Suggested Citation

Pan, Wei-Fong and Wang, Xinjie and Yang, Shanxiang and Zhang, Jinfan and Zhong, Zhaodong, Public News and Market Liquidity: Evidence from the CDS Market (December 7, 2019). Available at SSRN: https://ssrn.com/abstract=3500091 or http://dx.doi.org/10.2139/ssrn.3500091

Wei-Fong Pan

Department of Economics, University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Xinjie Wang (Contact Author)

Southern University of Science and Technology ( email )

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

Shanxiang Yang

Southern University of Science and Technology ( email )

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

Jinfan Zhang

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20431
United States

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
43
Abstract Views
403
PlumX Metrics