@article{ffda4d12aa2e49ccb8ff32ead03c2733,
title = "Are Credit Default Swaps a Sideshow? Evidence That Information Flows from Equity to CDS Markets",
abstract = "This article provides evidence that equity returns lead credit protection returns at daily and weekly frequencies, whereas credit protection returns do not lead equity returns. Our results indicate that informed traders are primarily active in the equity market rather than the credit default swap (CDS) market. These findings are consistent with standard theories of market selection by informed traders in which market selection is determined partially by transaction costs. We also find that credit protection returns respond more quickly during salient news events (earnings announcements) compared to days with similar equity returns and turnover. This evidence provides support for explanations related to investor inattention.",
author = "Jens Hilscher and Pollet, {Joshua M.} and Mungo Wilson",
note = "Funding Information: We thank Markit Group for providing us with data on credit default swap (CDS) spreads; Hendrik Bessembinder (the editor), Robin Greenwood, Denis Gromb, David Hirshleifer, Robert Jarrow, Carol Osler, Neil Pearson, Mark Seasholes, and Heather Tookes (the referee), as well as seminar participants at Brandeis University, Aalto University, Federal Reserve Bank of Boston, the 2012 Federal Deposit Insurance Corporation (FDIC) Derivatives Securities and Risk Management conference, the 2012 Annual Duisenberg Workshop in Behavioral Finance, and Wilfrid Laurier University for helpful comments; Glen Taksler, former head of CDS strategy at Bank of America, for numerous insightful discussions on the institutional details of the CDS market; and Ly Tran and Eugene Kiselev for research assistance. Wilson acknowledges the support of the Oxford-Man Institute and Economic and Social Research Council (ESRC) grant number ES/K005561/1. Publisher Copyright: Copyright {\textcopyright} Michael G. Foster School of Business, University of Washington 2015.",
year = "2015",
month = jul,
day = "16",
doi = "10.1017/S0022109015000228",
language = "English (US)",
volume = "50",
pages = "543--567",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "3",
}