Short-selling and credit default swap spreads—Where do informed traders trade?
Source of Publication
Journal of Futures Markets
© 2018 Wiley Periodicals, Inc. 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.
Lecce, Steven; Lepone, Andrew; McKenzie, Michael D.; Wong, Jin Boon; and Yang, Jin Y., "Short-selling and credit default swap spreads—Where do informed traders trade?" (2018). Scopus Indexed Articles. 1013.