The extent of informational efficiency in the credit default swap market: evidence from post-earnings announcement returns

The extent of informational efficiency in the credit default swap market: evidence from... Under semi-strong market efficiency future returns are unpredictable from previously released information. We test the degree of semi-strong form market efficiency in the credit default swap (CDS) market by examining the relationship between subsequent CDS returns and previously announced quarterly earnings surprises and quarterly accruals, both of which have been the source of stock market anomalies. We conduct our analysis over three time periods: (1) before the credit crisis that spanned from July 2007 to June 2009, (2) during the credit crisis, and (3) after the credit crisis. Both before and after the credit crisis, the CDS market was efficient, exhibiting no systematic relation between subsequent CDS returns and previously announced accounting information. During the credit crisis, however, we find that both quarterly earnings surprises and quarterly accruals are associated with systematic patterns in subsequent CDS returns that are consistent with underreaction to both measures. In the latter stages of the crisis, the pattern reverses, consistent with the CDS market overreacting to both measures although the overreaction is short-lived. Collectively, our results indicate that the CDS market is efficient during periods of relative economic stability but call into question its efficiency during less stable economic periods. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The extent of informational efficiency in the credit default swap market: evidence from post-earnings announcement returns

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-014-0484-y
Publisher site
See Article on Publisher Site

References

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