CDS and Equity Market Reactions to Stock Issuances in the U.S. Financial Industry : Evidence from the 2002-13 Period
We study market reactions to seasoned equity issuances that were announced by financial companies between 2002 and 2013. To assess the risk and valuation implications of these seasoned equity issuances, we conduct an event analysis using daily credit default swap (CDS) and stock market pricing data. The major findings of the paper are that CDS prices respond quickly to new, default-relevant information. Over the full sample period, cumulative abnormal CDS spreads drop in response to equity issuance announcements. The reactions are significantly stronger during the financial crisis. At that time, the federal government injected equity into financial institutions to ensure their viability. The market reacted to the equity issue announcements by assessing significantly lower costs for default protection via credit default swaps. The evidence indicates that single-name CDS based on financial firms' default probabilities are potentially useful for private investors and regulators
Year of publication: |
2014
|
---|---|
Authors: | Cornett, Marcia Millon |
Other Persons: | Mehran, Hamid (contributor) ; Pan, Kevin (contributor) ; Phan, Minh (contributor) ; Wei, Chenyang (Jason) (contributor) |
Publisher: |
[2014]: [S.l.] : SSRN |
Subject: | USA | United States | Aktienmarkt | Stock market | Börsenkurs | Share price | Kreditderivat | Credit derivative | Finanzmarkt | Financial market | Börsengang | Initial public offering |
Saved in:
freely available
Extent: | 1 Online-Ressource (39 p) |
---|---|
Series: | FRB of New York Staff Report ; No. 697 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 1, 2014 erstellt |
Other identifiers: | 10.2139/ssrn.2521615 [DOI] |
Classification: | G01 - Financial Crises ; G21 - Banks; Other Depository Institutions; Mortgages ; G32 - Financing Policy; Capital and Ownership Structure |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013044326