Short-selling and credit default swap spreads-Where do informed traders trade?

Steven Lecce, Andrew Lepone*, Michael D. Mckenzie, Jin Boon Wong, Jin Y. Yang

*Corresponding author for this work

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

During the global financial crisis, short-selling and credit default swaps (CDS) gained notoriety as indicators of financial collapse. This paper extends the literature by examining the relationship between short-selling and CDS spreads. Results indicate that lagged short-selling metrics forecast changes in CDS spreads; short-selling is found to have a positive relationship with CDS spreads. These results are robust to various controls including the supply of stock for short-selling, changes in CDS spreads, cross-sectional controls for fixed effects, sub-group analysis by industry sector, and the use of contemporaneous explanatory variables. This suggests that informed traders prefer to short-sell the underlying stocks.

Original languageEnglish
Pages (from-to)925-942
Number of pages18
JournalThe Journal of Futures Markets
Volume38
Issue number8
Early online date6 Apr 2018
DOIs
Publication statusPublished - 2018

Keywords

  • CDS spreads
  • Credit default swaps
  • Credit spreads
  • Securities lending
  • Short-selling

Fingerprint Dive into the research topics of 'Short-selling and credit default swap spreads-Where do informed traders trade?'. Together they form a unique fingerprint.

  • Cite this