This paper analyzes the dynamic relationship between the CDS and the stock market for a sample of Japanese companies during the period from July 21, 2009 to October 16, 2012. In particular, by focusing on the difference in the results between the two (tranquil vs. chaotic) periods divided by the Great Earthquake on March 11, 2011, we investigate the intertemporal lead-lag relationship between the CDS and the stock market. In addition, this paper investigates whether informed trading occurs in the Japanese CDS market similar to insider trading in the U.S. CDS market, which is empirically evidenced by Acharya and Johnson (2007) and Qiu and Yu (2012). Furthermore, this paper investigates whether informed trading patterns in the Japanese CDS market is different between firms that are keiretsu-affiliated or not. The results are summarized as follows. First, consistent with prior evidence primarily based on the U.S. and European data, the contemporaneous correlation between daily CDS premium changes and stock returns are significantly negative in the Japanese market. Second, we find that the stock market’s leading role in the price discovery process is very weak in the Japanese market relative to the informational dominance of the stock market observed in the U.S. and European markets. Third, we observe that the lead-lag relationship between the Japanese CDS and the stock market is not stable and that the CDS market's contribution to the price discovery process is much higher in times of crisis. Fourth, in the Japanese CDS market the unconditional information flow from the CDS market to the stock market exists, but primarily for keiretsu-affiliated firms. Fifth, the flow of information from the CDS market to the stock market, which is conditional on there being a bad credit event ahead, exists only in times of crisis and moreover, only for keiretsu-affiliated firms. This result supports Acharya and Johnson's (2007) contention that insider trading in the CDS market occurs in entities that subsequently experience adverse credit events, and this phenomenon becomes more distinct as banking relationship increases.
In conclusion, prior empirical evidence, which is primarily based on U.S. and European data, generally holds for the sample of Japanese CDS. However, there also exist some differences, which may be attributed to some institutional features unique to the Japanese markets, such as inactive secondary bond market, keiretsu, etc.
JEL Classification: G12, G14
Keywords: Credit risk, CDS(credit default swap), Information flow, Informed trading
학회소식
[2013년 제 4차] Lead-Lag Relationship and Informed Trading in the J
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게시일 :
2013-12-16
