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

• Published in: Seonmul yeongu (Online) Vol. 32; no. 2; pp. 145 - 158
• Main Authors: Park, Heewoo, Park, Yuen Jung
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Group Publishing Limited 20.05.2024; Emerald Publishing; 한국파생상품학회
• 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; United States > US
• ISSN: 1229-988X; 2713-6647; 2713-6647; 1229-988X
• DOI: 10.1108/JDQS-09-2023-0029

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.