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The Credit Default Swap Market's Reaction to Earnings Announcements

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  • Caitlin Ann Greatrex

    (Fordham University, Department of Economics)

Abstract

This paper examines the efficiency of the CDS market by conducting a comparative event study in which both the CDS and the stock markets' responses to earnings announcements are considered. I find that both markets have statistically significant reactions to earnings announcements and both markets anticipate these informational events up to 90 trading days prior to announcement. I further find that neither markets' reaction to earnings announcements is entirely efficient as there is evidence of both over- and under-reaction to earnings news. However, results are sensitive to both the categorization of earnings and the model used to generate abnormal performance.

Suggested Citation

  • Caitlin Ann Greatrex, 2008. "The Credit Default Swap Market's Reaction to Earnings Announcements," Fordham Economics Discussion Paper Series dp2008-06, Fordham University, Department of Economics.
    • Handle: RePEc:frd:wpaper:dp2008-06
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    File URL: https://archive.fordham.edu/ECONOMICS_RESEARCH/PAPERS/dp2008_06_greatrex.pdf
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    References listed on IDEAS

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    Cited by:

    1. Andres, Christian & Betzer, André & Doumet, Markus, 2021. "Measuring changes in credit risk: The case of CDS event studies," Global Finance Journal, Elsevier, vol. 49(C).
    2. Wisniewski, Tomasz Piotr & Lambe, Brendan John, 2015. "Does economic policy uncertainty drive CDS spreads?," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 447-458.
    3. Donald P. Morgan & Stavros Peristiani & Vanessa Savino, 2014. "The Information Value of the Stress Test," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(7), pages 1479-1500, October.
    4. Jatin Malhotra & Angelo Corelli, 2018. "The Determinants of CDS Spreads in Multiple Industry Sectors: A Comparison between the US and Europe," Risks, MDPI, vol. 6(3), pages 1-16, August.
    5. Choi, Sun-Yong, 2022. "Credit risk interdependence in global financial markets: Evidence from three regions using multiple and partial wavelet approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Credit default swap; market efficiency; earnings announcements; credit ratings.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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