Revisiting the Relevance of Financial-Statement for CDS Trading From an Adaptive-Markets Hypothesis Perspective
30 Pages Posted: 16 Oct 2018
Date Written: September 24, 2018
Abstract
Using a framework motivated by the Adaptive Markets Hypothesis (AMH) I explore the extent to which the financial statement (FS) is relevant for Credit Default Swap (CDS) trading. I propose a Bayesian Model Averaging approach to examine properties of accounting metrics that enter the trading heuristics of the market participants. Hypothesis-testing is conducted on various horizons around the announcement of corporate results. The diversity of trading rules and the shift in the heuristics mix that occurred after 2008, support the AMH perspective. Overall, results show that there is a significant component of profit-motivated trading in the CDS market that relies on financial statement information.
Keywords: Adaptive Markets Hypothesis, Financial Statement, Bayesian Model Averaging, CDS
JEL Classification: C44, G14, C11
Suggested Citation: Suggested Citation