PT  - JOURNAL ARTICLE
AU  - Wen-Cheng Hu
AU  - Alex YiHou Huang
TI  - Asymmetric Dynamics between Informed Trading Activity and Credit Default Swaps
AID  - 10.3905/jod.2018.1.070
DP  - 2018 Nov 19
TA  - The Journal of Derivatives
PG  - jod.2018.1.070
4099  - https://pm-research.com/content/early/2018/11/19/jod.2018.1.070.short
4100  - https://pm-research.com/content/early/2018/11/19/jod.2018.1.070.full
AB  - 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.