News-Specific Price Discovery in Credit Default Swap Markets

Ian W. Marsh, Wolf Wagner

Research output: Contribution to journalArticleAcademicpeer-review

23 Citations (Scopus)


We examine the lead and lag relation between equity and credit default swap (CDS) markets. We find that price discovery in equity markets only leads CDS markets following aggregate positive news and not so following other news. While difficult to reconcile with standard asset pricing theories, asymmetric price adjustment is common in goods markets, arising from intermediary power. We provide an explanation for this asymmetry based on dealers exploiting informational advantages vis-à-vis investors with hedging motives. Consistent with this explanation, we find that the patterns we document are related to firm-level proxies for hedging demand, as well as economy-wide measures of information asymmetries.

Original languageEnglish
Pages (from-to)315-340
Number of pages26
JournalFinancial Management
Issue number2
Publication statusPublished - 1 Jun 2016

Bibliographical note

Publisher Copyright:
© 2015 Financial Management Association International


Dive into the research topics of 'News-Specific Price Discovery in Credit Default Swap Markets'. Together they form a unique fingerprint.

Cite this