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Making sense of the mess : do CDS's help?

In a firm level matched sample of 499 firms we examine the information flow between stocks and the credit default swap (CDSs) over a period of January 2004 to December 2008. Our study confirms the general findings of previous studies that the information generally flows from equity market to CDS market. However, for a much smaller number of firms we also find that information also flows from the CDS to its stock. A major advantage of our sample period is that it allows us to examine the information flow before and during the crisis. This paper makes two contributions. We document that the firms for which the information flows from the CDS to its stock increases by almost tenfold during the crisis. The current crisis is often referred as a credit crisis, so this finding is consistent with what is expected of CDSs. The major contribution of this paper is that it identifies the firm specific factors that influence the information flow across the two markets. We show that characteristics such as asset size, profitability, and industry, amongst others, play an important role in determining information flow.

Identiferoai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:SSU.etd-04082010-103054
Date12 April 2010
CreatorsEsau, Heidi Marie
ContributorsWilson, Craig, Mamun, Abdullah
PublisherUniversity of Saskatchewan
Source SetsLibrary and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada
LanguageEnglish
Detected LanguageEnglish
Typetext
Formatapplication/pdf
Sourcehttp://library.usask.ca/theses/available/etd-04082010-103054/
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