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

Research output: Contribution to journalArticleResearchpeer-review

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.

LanguageEnglish
Pages925-942
Number of pages18
JournalThe Journal of Futures Markets
Volume38
Issue number8
Early online date6 Apr 2018
DOIs
Publication statusPublished - 2018

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Short selling
Credit default swap (CDS) spreads
Informed traders
Global financial crisis
Fixed effects
Industry
Credit default swaps

Keywords

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

Cite this

Lecce, Steven ; Lepone, Andrew ; Mckenzie, Michael D. ; Wong, Jin Boon ; Yang, Jin Y. / Short-selling and credit default swap spreads-Where do informed traders trade?. In: The Journal of Futures Markets. 2018 ; Vol. 38, No. 8. pp. 925-942.
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Short-selling and credit default swap spreads-Where do informed traders trade? / Lecce, Steven; Lepone, Andrew; Mckenzie, Michael D.; Wong, Jin Boon; Yang, Jin Y.

In: The Journal of Futures Markets, Vol. 38, No. 8, 2018, p. 925-942.

Research output: Contribution to journalArticleResearchpeer-review

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