Explaining co-movements between equity and CDS bid-ask spreads

Marra, M. ORCID: https://orcid.org/0000-0003-0810-7323 (2017) Explaining co-movements between equity and CDS bid-ask spreads. Review of Quantitative Finance and Accounting, 49 (3). pp. 811-853. ISSN 1573-7179 doi: 10.1007/s11156-016-0609-6

Abstract/Summary

In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/67479
Identification Number/DOI	10.1007/s11156-016-0609-6
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Uncontrolled Keywords	Credit Default Swap, Bid-Ask Spread Co-movement, Funding Costs, Systematic Risk, Hedging, Capital Structure Arbitrage
Publisher	Springer
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