Short-selling and credit default swap spreads—Where do informed traders trade?

Author First name, Last name, Institution

• Steven Lecce
• Andrew Lepone
• Michael D. McKenzie
• Jin Boon Wong
• Jin Young Yang

ORCID Identifiers

0000-0001-7082-0993

Document Type

Article

Source of Publication

Journal of Futures Markets

Publication Date

8-1-2018

Abstract

© 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.

DOI Link

10.1002/fut.21917

ISSN

0270-7314

Publisher

Wiley-Liss Inc.

Volume

38

Issue

8

First Page

925

Last Page

942

Disciplines

Business

Keywords

CDS spreads, credit default swaps, credit spreads, securities lending, short-selling

Scopus ID

85044944962

Recommended Citation

Lecce, Steven; Lepone, Andrew; McKenzie, Michael D.; Wong, Jin Boon; and Yang, Jin Young, "Short-selling and credit default swap spreads—Where do informed traders trade?" (2018). All Works. 3085.
https://zuscholars.zu.ac.ae/works/3085

Indexed in Scopus

yes

Open Access

no