Are financial ratios relevant for trading credit risk? Evidence from the CDS market

Are financial ratios relevant for trading credit risk? Evidence from the CDS market We propose a combination of LASSO with panel-consistent estimation methods to investigate whether financial ratios are used in the decision-making process of CDS traders. Our results indicate that financial statement information does play a role in all the trading horizons surrounding the announcement date and the corresponding styles. These include pro-active analysts trying to predict quarterly results, news traders reacting to unanticipated information and value traders who fine-tune their estimates and act accordingly at a later stage. Our findings also suggest that CDS traders respond asymmetrically to financial ratio updates of different sign and intensity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Annals of Operations Research Springer Journals

Are financial ratios relevant for trading credit risk? Evidence from the CDS market

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Publisher
Springer Journals
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Business and Management; Operations Research/Decision Theory; Combinatorics; Theory of Computation
ISSN
0254-5330
eISSN
1572-9338
D.O.I.
10.1007/s10479-016-2373-3
Publisher site
See Article on Publisher Site

Abstract

We propose a combination of LASSO with panel-consistent estimation methods to investigate whether financial ratios are used in the decision-making process of CDS traders. Our results indicate that financial statement information does play a role in all the trading horizons surrounding the announcement date and the corresponding styles. These include pro-active analysts trying to predict quarterly results, news traders reacting to unanticipated information and value traders who fine-tune their estimates and act accordingly at a later stage. Our findings also suggest that CDS traders respond asymmetrically to financial ratio updates of different sign and intensity.

Journal

Annals of Operations ResearchSpringer Journals

Published: Nov 28, 2016

References

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