Publication Type
Journal Article
Version
acceptedVersion
Publication Date
8-2015
Abstract
We document that equity markets become less liquid and equity prices become less efficient when markets for single-name credit default swap (CDS) contracts emerge. This finding is robust across a variety of market quality measures. We analyze the potential mechanisms driving this result and find evidence consistent with negative trader-driven information spillovers that result from the introduction of CDS. These spillovers greatly outweigh the potentially positive effects associated with completing markets (e.g., CDS markets increase hedging opportunities) when firms and their equity markets are in “bad” states. In “good” states, we find some evidence that CDS markets can be beneficial.
Keywords
CDS, market quality, related securities.
Discipline
Finance and Financial Management
Research Areas
Finance
Publication
Journal of Financial and Quantitative Analysis
Volume
50
Issue
3
First Page
509
Last Page
541
ISSN
0022-1090
Identifier
10.1017/S0022109015000241
Publisher
Cambridge University Press (CUP): HSS Journals
Citation
Ekkehart BOEHMER; CHAVA, Sudheer; and TOOKES, Heather.
Related Securities and Equity Market Quality: The Case of CDS. (2015). Journal of Financial and Quantitative Analysis. 50, (3), 509-541.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/4788
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1017/S0022109015000241