Economics, Econometrics and Finance
4 years ago

Equity Market Leads Credit Protection Returns, Revealing Informed Traders' Strategies.

Journal of Financial and Quantitative Analysis
Are Credit Default Swaps a Sideshow? Evidence That Information Flows from Equity to CDS Markets
Jens Hilscher, Joshua Matthew Pollet, Mungo Ivor Wilson

Paper Summary

Equity returns lead credit protection returns, not the other way around. Informed traders focus more on the stock market than the credit default swap market. Credit protection reacts faster to important news like earnings announcements. This suggests that investors pay more attention to stocks than credit default swaps.

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