The externalities of credit default swaps on stock return synchronicity. Issue 1 (14th August 2019)

• Record Type: Journal Article
• Authors: Zhao, Ran; Zhu, Lu
• Is Part Of: Journal of futures markets. Volume 40:Issue 1(2020)
• Page Start: 92
• Page End: 125
• Publication Date: 2019-08-14
• Subjects: credit default swaps -- customer–supplier relationship -- externalities -- information spillover -- stock return synchronicity; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.22045
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract: We examine the externality effect of customer firms' credit default swap (CDS) trading on the stock price informativeness of supplier firms. Our empirical results show that firms with a high proportion of sales to CDS referenced customers tend to have more firm‐specific embedded information in their stock prices and thus higher stock price informativeness, which is associated with a lower level of stock return synchronicity. We provide new evidence of CDS trading externality on equity market information environments along the supply chain.