The Determinants of Insider Trading in the Credit Default Swap Market -A Network Perspective

38 Pages Posted: 20 Sep 2021 Last revised: 11 Dec 2021

See all articles by Nan Hu

Nan Hu

Xi'an Jiaotong University (XJTU) - School of Management; Stevens Institute of Technology - School of Business

Xingnan Xue

Xi'an Jiaotong University (XJTU) - School of Management

Peng Liang

Xi'an Jiaotong University (XJTU) - School of Management

Ling Liu

affiliation not provided to SSRN

Date Written: August 18, 2020

Abstract

This study investigates whether and how insider trading in the credit default swap (CDS) market is influenced by the corporate board network, formed by interlocking boards. We find strong evidence that firms with a more centralized position in the board network experience a higher degree of insider trading in the CDS market. Our results suggest that the board network facilitates private information leakage to investors, resulting in more active informed trading in the CDS market. Moreover, such an association is more pronounced for firms with negative earnings news and for firms with weak corporate governance. In addition, using the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as a quasi-natural experiment, we document that insider trading becomes less active after the passage of the Dodd-Frank Act. Our results still hold when we run our analysis using four centrality measures separately or when controlling for the number of banking relationships.

Keywords: Insider trading, Board networks, Credit default swap (CDS), Dodd-Frank Act

JEL Classification: G12 G14 G2

Suggested Citation

Hu, Nan and Hu, Nan and Xue, Xingnan and Liang, Peng and Liu, Ling, The Determinants of Insider Trading in the Credit Default Swap Market -A Network Perspective (August 18, 2020). Available at SSRN: https://ssrn.com/abstract=3925911 or http://dx.doi.org/10.2139/ssrn.3925911

Nan Hu

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Xingnan Xue (Contact Author)

Xi'an Jiaotong University (XJTU) - School of Management ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Peng Liang

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Ling Liu

affiliation not provided to SSRN

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