Explaining co-movements between equity and CDS bid-ask spreadsMarra, M. (2017) Explaining co-movements between equity and CDS bid-ask spreads. Review of Quantitative Finance and Accounting, 49 (3). pp. 811-853. ISSN 1573-7179
It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing. To link to this item DOI: 10.1007/s11156-016-0609-6 Abstract/SummaryIn this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.
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