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Price discovery in equity and CDS markets

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  • Kryzanowski, Lawrence
  • Perrakis, Stylianos
  • Zhong, Rui

Abstract

Price discovery contributions of equity and credit default swap (CDS) markets for U.S. firms with intraday data in 2009–2013 are examined using information and component shares metrics. Particular attention is paid to the drawbacks of these metrics because of unobservable factors such as microstructure noise and model error. While no market generally exhibits a price-discovery advantage, the CDS market's contribution increases strongly and significantly for after-hours OTC trading and for negative earnings surprises, especially with high firm-specific uncertainty. We provide some evidence that surprises contained in various macroeconomic announcements are associated with greater relative price discovery in the CDS market.

Suggested Citation

  • Kryzanowski, Lawrence & Perrakis, Stylianos & Zhong, Rui, 2017. "Price discovery in equity and CDS markets," Journal of Financial Markets, Elsevier, vol. 35(C), pages 21-46.
    • Handle: RePEc:eee:finmar:v:35:y:2017:i:c:p:21-46
    DOI: 10.1016/j.finmar.2017.07.006
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    Cited by:

    1. Kryzanowski, Lawrence & Nie, Yulin (George), 2019. "M&A price pressure revisited," Finance Research Letters, Elsevier, vol. 28(C), pages 299-308.
    2. Sebastiano Michele Zema & Francesco Cordoni, 2023. "A non-Normal framework for price discovery: The independent component based information shares measure," LEM Papers Series 2023/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Kryzanowski, Lawrence & Perrakis, Stylianos & Zhong, Rui, 2021. "Financial oligopolies and parallel exclusion in the credit default swap markets," Journal of Financial Markets, Elsevier, vol. 56(C).
    4. Papavassiliou, Vassilios G. & Kinateder, Harald, 2021. "Information shares and market quality before and during the European sovereign debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    5. Marra, Miriam & Yu, Fan & Zhu, Lu, 2019. "The impact of trade reporting and central clearing on CDS price informativeness," Journal of Financial Stability, Elsevier, vol. 43(C), pages 130-145.
    6. Ran Zhao & Lu Zhu, 2020. "The externalities of credit default swaps on stock return synchronicity," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(1), pages 92-125, January.
    7. Zema, Sebastiano Michele, 2022. "Directed acyclic graph based information shares for price discovery," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    8. Zimmermann, Paul, 2021. "The role of the leverage effect in the price discovery process of credit markets," Journal of Economic Dynamics and Control, Elsevier, vol. 122(C).
    9. Sebastiano Michele Zema, 2020. "Directed Acyclic Graph based Information Shares for Price Discovery," LEM Papers Series 2020/28, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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    More about this item

    Keywords

    Price discovery; Information Shares; Information shocks;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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