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Article

Asymmetric Dynamics between Informed Trading Activity and Credit Default Swaps

Wen-Cheng Hu and Alex YiHou Huang
The Journal of Derivatives Winter 2018, jod.2018.1.070; DOI: https://doi.org/10.3905/jod.2018.1.070
Wen-Cheng Hu
is an assistant professor in the Department of Banking and Finance at the CTBC Business School in Taiwan
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Alex YiHou Huang
is an associate professor in the Department of Information Management and Finance/Graduate Institute of Finance at the National Chiao Tung University in Taiwan
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Abstract

This article investigates the relationship between informed trading activity and CDS spreads; contrary to prior research, the results show that level of information-based trading of stocks should be a key determinant of CDS spreads. Using the panel quantile regression model, this article finds that the effects of informed trading activity on CDS spreads are asymmetrical across firms with different levels of credit conditions. Further, these asymmetric dynamics behave in opposite directions across different economic conditions. In particular, when economic conditions are good, a negative (positive) relation between informed trading activity and CDS spreads is documented for firms with bad (good) credit conditions. When economic conditions are unfavorable, catastrophic news dominates investment decisions, and a reverse asymmetrical dynamic between the two variables is then observed.

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The Journal of Derivatives: 28 (3)
The Journal of Derivatives
Vol. 28, Issue 3
Spring 2021
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Asymmetric Dynamics between Informed Trading Activity and Credit Default Swaps
Wen-Cheng Hu, Alex YiHou Huang
The Journal of Derivatives Nov 2018, jod.2018.1.070; DOI: 10.3905/jod.2018.1.070

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Asymmetric Dynamics between Informed Trading Activity and Credit Default Swaps
Wen-Cheng Hu, Alex YiHou Huang
The Journal of Derivatives Nov 2018, jod.2018.1.070; DOI: 10.3905/jod.2018.1.070
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