Rating downgrade and the price impact of CDS spread on stock return

We investigate the time-varying informativeness of credit default swap (CDS) trading on stock returns for 302 US firms from July 2004 to August 2010. Using the Acharya and Johnson (2007) measure, we find that CDS trading becomes informative for an increasing number of firms as we approach the global financial crisis (GFC). Firm numbers gradually decline post-GFC, but remain high compared to the pre-GFC period. furthermore, CDS trading imposes the largest conditional price impact on firms that are recently downgraded, regardless of rating levels. Interestingly, this holds during and after the GFC, but not before. We offer two implications. First, despite post-GFC outcry against the CDS market, our results suggest it exhibits enhanced price discovery during the GFC. Second, our findings support criticism that, in the lead-up to the GFC, rating agencies are slow in downgrading firms. However, if downgrade decisions made during and after the GFC induce informed trading in the CDS market, this necessarily implies that during the midst of the GFC, rating agencies have got their act together.

An analysis of sectoral equity and CDS spreads

In this paper, we find that CDS return shocks are important in explaining the forecast error variance of sectoral equity returns for the USA. The CDS return shocks have different effects on equity returns and return volatility in the pre-crisis and crisis periods. It is the post-Lehman crisis period in which the effects of CDS return shocks are the most dominant. Finally, we construct a spillover index and find that it is time-varying and explains a larger share of total forecast error variance of sectoral equity and CDS returns for some sectors than for others.

The economic significance of CDS price discovery

© 2015 Springer Science+Business Media New York Between 2005 and 2009, we document evident time-varying credit risk price discovery between the equity and credit default swap (CDS) markets for 174 US non-financial investment-grade firms. We test the economic significance of a simple portfolio strategy that utilizes fluctuation in CDS spreads as a trading signal to set stock positions, conditional on the CDS price discovery status of the reference entities. We show that a conditional portfolio strategy which updates the list of CDS-influenced firms over time, yields a substantively larger realized return net of transaction cost over the unconditional strategy. Furthermore, the conditional strategy’s Sharpe ratio outperforms a series of benchmark portfolios over the same trading period, including buy-and-hold, momentum and dividend yield strategies.

Corporate credit risk prediction under stochastic volatility and jumps

This paper examines the impact of allowing for stochastic volatility and jumps (SVJ) in a structural model on corporate credit risk prediction. The results from a simulation study verify the better performance of the SVJ model compared with the commonly used Merton model, and three sources are provided to explain the superiority. The empirical analysis on two real samples further ascertains the importance of recognizing the stochastic volatility and jumps by showing that the SVJ model decreases bias in spread prediction from the Merton model, and better explains the time variation in actual CDS spreads. The improvements are found particularly apparent in small firms or when the market is turbulent such as the recent financial crisis.

A Tutorial on Integrating CDS/ISIS Databases with the World Wide Web

With the emergence of Internet, the global connectivity of computers has become a reality. Internet has progressed to provide many user-friendly tools like Gopher, WAIS, WWW etc. for information publishing and access. The WWW, which integrates all other access tools, also provides a very convenient means for publishing and accessing multimedia and hypertext linked documents stored in computers spread across the world. With the emergence of WWW technology, most of the information activities are becoming Web-centric. Once the information is published on the Web, a user can access this information from any part of the world. A Web browser like Netscape or Internet Explorer is used as a common user interface for accessing information/databases. This will greatly relieve a user from learning the search syntax of individual information systems. Libraries are taking advantage of these developments to provide access to their resources on the Web. CDS/ISIS is a very popular bibliographic information management software used in India. In this tutorial we present details of integrating CDS/ISIS with the WWW. A number of tools are now available for making CDS/ISIS database accessible on the Internet/Web. Some of these are 1) the WAIS_ISIS Server. 2) the WWWISIS Server 3) the IQUERY Server. In this tutorial, we have explained in detail the steps involved in providing Web access to an existing CDS/ISIS database using the freely available software, WWWISIS. This software is developed, maintained and distributed by BIREME, the Latin American & Caribbean Centre on Health Sciences Information. WWWISIS acts as a server for CDS/ISIS databases in a WWW client/server environment. It supports functions for searching, formatting and data entry operations over CDS/ISIS databases. WWWISIS is available for various operating systems. We have tested this software on Windows '95, Windows NT and Red Hat Linux release 5.2 (Appolo) Kernel 2. 0. 36 on an i686. The testing was carried out using IISc's main library's OPAC containing more than 80,000 records and Current Contents issues (bibliographic data) containing more than 25,000 records. WWWISIS is fully compatible with CDS/ISIS 3.07 file structure. However, on a system running Unix or its variant, there is no guarantee of this compatibility. It is therefore safe to recreate the master and the inverted files, using utilities provided by BIREME, under Unix environment.

Modelación estocástica y trading algorítmico del spread entre acciones mediante procesos de reversión a la media

Las estrategias de inversión pairs trading se basan en desviaciones del precio entre pares de acciones correlacionadas y han sido ampliamente implementadas por fondos de inversión tomando posiciones largas y cortas en las acciones seleccionadas cuando surgen divergencias y obteniendo utilidad cerrando la posición al converger. Se describe un modelo de reversión a la media para analizar la dinámica que sigue el diferencial del precio entre acciones ordinarias y preferenciales de una misma empresa en el mismo mercado. La media de convergencia en el largo plazo es obtenida con un filtro de media móvil, posteriormente, los parámetros del modelo de reversión a la media se estiman mediante un filtro de Kalman bajo una formulación de estado espacio sobre las series históricas. Se realiza un backtesting a la estrategia de pairs trading algorítmico sobre el modelo propuesto indicando potenciales utilidades en mercados financieros que se observan por fuera del equilibrio. Aplicaciones de los resultados podrían mostrar oportunidades para mejorar el rendimiento de portafolios, corregir errores de valoración y sobrellevar mejor periodos de bajos retornos.

Estudo sobre o efeito de variáveis macro econômico e do spread de credit default swap no risco de evento de crédito soberano

Este trabalho explora a realização de default soberano em função da estrutura de spreads de CDS (Credit Default Swap). Pode-se dizer que os spreads revelam a probabilidade de default de um país. Aplicamos a metodologia proposta neste trabalho para Argentina, Coreia, Equador, Indonésia, México, Peru, Turquia, Ucrânia, Venezuela e Rússia. Nós mostramos que um modelo de um único fator seguindo um processo lognormal captura a probabilidade de default. Também mostramos que as variáveis macro econômicas inflação, desemprego e crescimento não explicam a variável dependente do estudo (probabilidade de default). Cada país reage de maneira diferente a crise econômica que a leva a não honrar seus compromissos com as dívidas contraídas.

Italia e Spagna alle prese con lo "spread": riflessioni sugli anglicismi nel lessico della crisi economica

Este trabajo se concentra sobre el papel que los anglicismos desempeñan en la lengua italiana. Se compara el uso de anglicismos en la lengua italiana con su uso en la lengua española, y se reflexiona sobre las razones de una presencia mayor en italiano de anglicismos no adaptados, y una tendencia en español a traducir los préstamos a la hora de importarlos, produciendo calcos. Se utilizarán los informativos televisivos como fuentes, en cuanto, por un lado, son espejo de la lengua hablada, y, por otro, influencian el proceso de interferencia, o sea, la manera en la que los anglicismos entran en la lengua de llegada. Se proponen ejemplos de palabras que los telediarios italianos utilizan en forma no adaptada, acompañados de su equivalente en español y un ejemplo práctico de su uso en informativos españoles. El objetivo de este trabajo es observar la proliferación de anglicismos en italiano, analizando el campo de la economía en informativos destinados a un público no especializado, comparando esta tendencia de la lengua italiana con la del español y reflexionar sobre la necesidad de uso de los anglicismos recogidos en el corpus del trabajo y/o su posible sustitución por equivalentes de las lenguas analizadas.

The distribution and spread of citrus canker in Emerald, Australia

Citrus canker is a disease of citrus and closely related species, caused by the bacterium Xanthomonas citri subsp. citri. This disease, previously exotic to Australia, was detected on a single farm [infested premise-1, (IP1). IP is the terminology used in official biosecurity protocols to describe a locality at which an exotic plant pest has been confirmed or is presumed to exist. IP are numbered sequentially as they are detected] in Emerald, Queensland in July 2004. During the following 10 months the disease was subsequently detected on two other farms (IP2 and IP3) within the same area and studies indicated the disease first occurred on IP1 and spread to IP2 and IP3. The oldest, naturally infected plant tissue observed on any of these farms indicated the disease was present on IP1 for several months before detection and established on IP2 and IP3 during the second quarter (i.e. autumn) 2004. Transect studies on some IP1 blocks showed disease incidences ranged between 52 and 100% (trees infected). This contrasted to very low disease incidence, less than 4% of trees within a block, on IP2 and IP3. The mechanisms proposed for disease spread within blocks include weather-assisted dispersal of the bacterium (e.g. wind-driven rain) and movement of contaminated farm equipment, in particular by pivot irrigator towers via mechanical damage in combination with abundant water. Spread between blocks on IP2 was attributed to movement of contaminated farm equipment and/or people. Epidemiology results suggest: (i) successive surveillance rounds increase the likelihood of disease detection; (ii) surveillance sensitivity is affected by tree size; and (iii) individual destruction zones (for the purpose of eradication) could be determined using disease incidence and severity data rather than a predefined set area.

Gender inequality and the spread of HIV-AIDS in India

Purpose The purpose of the paper is to analyze the low status of women as being a major contributor for the observed gender inequality in the spread of HIV/AIDS in India. Design/methodology/approach The paper uses data from National Aids Control Organization (NACO), National Family Health Survey (NFHS 3), and the Directorate of Economics and Statistics. Findings This study highlights the problems facing women in deterring the spread of HIV/AIDS in India. The status and empowerment of women are important variables in combating the disease among both men and women in India. Literacy, education, exposure to the media, labor market participation, awareness of HIV/AIDS, and economic independence are important considerations in improving the status of women in India. Policymakers need to focus on gender inequality in order to combat the spread of HIV/AIDS in India. Originality/value While absolute figures indicate men are more likely to be infected with HIV/AIDS, the rate of decline is higher for men compared to women in India. We explore several plausible explanations for such observed inequality in the spread of HIV/AIDS across gender. In particular, a potentially important factor - the low status of women in society is attributable as an impediment to the spread of the disease. A case study of the relationship between gender empowerment and the spread of HIV/AIDS in the state with the highest concentration, Manipur, provides more insight to the difficulties faced by women in combating HIV/AIDS in India.