Do Equity Markets Favor Credit Markets News Over Options Market News?

57 Pages Posted: 16 Mar 2007 Last revised: 5 Aug 2014

See all articles by Antje Berndt

Antje Berndt

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics

Anastasiya Ostrovnaya

Carnegie Mellon University - David A. Tepper School of Business

Date Written: July 31, 2014

Abstract

Credit default swap and equity options markets often experience abnormal swings prior to the announcement of negative credit news. Option prices reveal information about such forthcoming adverse events at least as early as credit spreads, except for negative earnings announcements. Prior to negative credit news being announced, the equity market does not respond to abnormal movements in option prices unless that information has also manifested itself in credit spreads, perhaps because options are perceived as more likely to trade on unsubstantiated rumors than default swaps.

Keywords: Credit and equity derivatives, Lead-lag analysis, Accounting scandals, Negative Earnings, Leveraged buyouts

JEL Classification: G12, G13, G14, D8

Suggested Citation

Berndt, Antje and Ostrovnaya, Anastasiya, Do Equity Markets Favor Credit Markets News Over Options Market News? (July 31, 2014). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972806 or http://dx.doi.org/10.2139/ssrn.972806

Antje Berndt (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Canberra, ACT 0200
Australia

HOME PAGE: http://www.cbe.anu.edu.au/about/staff-directory/?profile=Antje-Berndt

Anastasiya Ostrovnaya

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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