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2013 | 21 | 4(123) | 25-54
Article title

An Analysis of Insider Trading in the Credit Derivatives Market Using the Event Study Methodology

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EN
Abstracts
EN
Purpose: In this paper I investigate the information fl ow between the credit default swap market and the stock market as well as insider trading in the credit default swap market. Methodology: For my analysis I use the event study methodology. Using the event study methodology I calculate abnormal stock returns and abnormal credit default swap premium changes. The analysis is based on 175,874 observations collected for 92 companies between the years 2001 and 2010. Findings: The results show that the information fl ow from the credit default swap market to the stock market is the most signifi cant in terms of negative rating outlooks. The information fl ow is much less signifi cant in relations to negative surprises during announcements of annual fi nancial results and rating upgrades. Evidence of insider trading is also most evident with reference to negative rating outlooks. Additionally, a distinctive feature of the credit default swap market and the stock market is the asymmetric response to negative and positive credit information. Research limitations: The event study methodology does not consider other potentially important reasons for the information flow between markets than the ones actually investigated. The credit events and credit risk information used in this research are just a proposal and can be extended by future researchers. Originality: This paper discusses a new research area. The main research area in terms of insider trading is still the stock market, with special focus on the US market. I decided to explore the insider trading phenomenon in the credit default swap market. I only considered contracts that are quoted with reference to European underlying assets. This part of the fi nancial market is attractive in terms of economic research as credit derivatives are more commonly used not only in North America but also in Europe.
Year
Volume
21
Issue
Pages
25-54
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References
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Publication order reference
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bwmeta1.element.desklight-f171b94c-2d36-41a1-8e79-44f4a8a2cd25
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