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Insider trading in credit derivatives☆

2007; Elsevier BV; Volume: 84; Issue: 1 Linguagem: Inglês

10.1016/j.jfineco.2006.05.003

1879-2774

Viral V. Acharya, Tristan E. Johnson,

Financial Markets and Investment Strategies

Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we find significant incremental information revelation in the credit default swap market under circumstances consistent with the use of non-public information by informed banks. The information revelation occurs only for negative credit news and for entities that subsequently experience adverse shocks, and increases with the number of a firm's relationship banks. We find no evidence, however, that the degree of asymmetric information adversely affects prices or liquidity in either the equity or credit markets.