Information Flows between CDS and Equity Markets: An Empirical Study from European Countries using a VAR Model

초록

This study explores evidence that informed traders frequently leverage the credit derivative market for their trading activities. We examine over a decade’s worth of market data from more than 130 European companies to determine where these informed traders are predominantly active - the equity market or the Credit Default Swap (CDS) market. Using a Vector Autoregressive (VAR) model, we investigate which market spearheads price discovery and where the majority of informed traders are located. Our results show that informed traders are mainly active in the European equity market, which also leads the European CDS market in price discovery.

키워드