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Marra, Miriam (2017)
Publisher: Springer
Journal: Review of Quantitative Finance and Accounting
Languages: English
Types: Article
Subjects: Business, Management and Accounting(all), Accounting, Finance
In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.
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