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