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Are financial ratios relevant for trading credit risk? Evidence from the CDS market

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  • George Chalamandaris

    (Athens University of Economics and Business)

  • Nikos E. Vlachogiannakis

    (Bank of Greece)

Abstract

We propose a combination of LASSO with panel-consistent estimation methods to investigate whether financial ratios are used in the decision-making process of CDS traders. Our results indicate that financial statement information does play a role in all the trading horizons surrounding the announcement date and the corresponding styles. These include pro-active analysts trying to predict quarterly results, news traders reacting to unanticipated information and value traders who fine-tune their estimates and act accordingly at a later stage. Our findings also suggest that CDS traders respond asymmetrically to financial ratio updates of different sign and intensity.

Suggested Citation

  • George Chalamandaris & Nikos E. Vlachogiannakis, 2018. "Are financial ratios relevant for trading credit risk? Evidence from the CDS market," Annals of Operations Research, Springer, vol. 266(1), pages 395-440, July.
    • Handle: RePEc:spr:annopr:v:266:y:2018:i:1:d:10.1007_s10479-016-2373-3
    DOI: 10.1007/s10479-016-2373-3
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    More about this item

    Keywords

    CDS; Financial ratios; LASSO; Event study; Asymmetrical impact; Quantile regression;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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