We thank Yuelan Chen, Ning Gong and Tarun Chordia for helpful comments. We acknowledge seminar participants at the UNSW, University of Adelaide, University of Macau and National Taiwan University of Science and Technology. This study has been presented at the 2011 Midwest Finance Association Meeting and SFM conference. It is a semi-finalist for the 2011 FMA meeting best study award and a best study award recipient at the 2012 Asia-Pacific Association for Derivative conference.
Transmigration Across Price Discovery Categories: Evidence from the U.S. CDS and Equity Markets†
Version of Record online: 22 FEB 2013
© 2013 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 33, Issue 6, pages 573–599, June 2013
How to Cite
Xiang, V., Chng, M. and Fang, V. (2013), Transmigration Across Price Discovery Categories: Evidence from the U.S. CDS and Equity Markets. J. Fut. Mark., 33: 573–599. doi: 10.1002/fut.21599
- Issue online: 19 MAR 2013
- Version of Record online: 22 FEB 2013
- Manuscript Received: 1 DEC 2012
- Manuscript Accepted: 1 DEC 2012
We examine credit risk price discovery between the U.S. equity and credit default swap (CDS) markets for 174 firms between 2005 and 2009. Using Gonzalo–Granger [Gonzalo, J., & Granger, C. (1995). Journal of Business and Economic Statistics, 13, 27–35] and Hasbrouck [Hasbrouck, J. (1995). Journal of Finance, 50, 1175–1199] measures, we uncover an interesting price discovery transmigration pattern. Before the global financial crisis (GFC), CDS influences price discovery for 92 firms. During the height of the GFC, it increases to 159 firms, despite rising and increasingly volatile CDS spreads. Although the number of firms decrease post-GFC, it remains high compared to the pre-GFC period. The substantially higher and more volatile CDS spreads present informed speculators attractive trading opportunities in the CDS market that were not available before the GFC. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark