Does information environment affect information spillover between the CDS and stock markets in Korea?

This study analyzes the impact of the information environment (IE) and credit default swap (CDS) transaction costs on information transmission between the stock and CDS markets. Using the daily regression analysis on the Korean firm’s stock and CDS data from 2004 to 2023, the results show that compa...

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Bibliographic Details
Published in:Seonmul yeongu (Online) 2024, 32(2), , pp.145-158
Main Authors: Park, Heewoo, Park, Yuen Jung
Format: Article
Language:English
Subjects:
Arbitrage
CDS
Costs
Credit default swaps
Information environment
Information flow
Interest rates
Rates of return
Regression analysis
Securities markets
Stock exchanges
Stock prices
Transaction cost
Volatility
경영학
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Summary:This study analyzes the impact of the information environment (IE) and credit default swap (CDS) transaction costs on information transmission between the stock and CDS markets. Using the daily regression analysis on the Korean firm’s stock and CDS data from 2004 to 2023, the results show that companies with superior IE in the stock market exhibit a larger and more sensitive total information flow from the stock market to the CDS market. Companies with lower transaction costs in the CDS market demonstrate faster information flow. In the case of companies with superior IE, fundamental information is reflected in stock prices with high weight and thus the CDS spreads change reflecting information about stock prices. According to this study’s findings, the primary factor influencing the information flow from the stock market to the CDS market is the information environment of the company in the stock market, rather than transaction costs in the CDS market.
ISSN:1229-988X
2713-6647
2713-6647
DOI:10.1108/JDQS-09-2023-0029