Information in CDS Spreads

We investigate how public and private information drives corporate CDS spreads before rating announcements. We find that CDS spreads of firms with higher news intensity move significantly earlier and stronger before rating announcements, which can be explained with public information from daily wire news. We also find that private information of banks matters. CDS spread changes are larger for firms with more banks and days with no news but large abnormal CDS spread changes are more frequent before negative announcements than before positive ones. The evidence highlights the important role of CDS in processing public and private credit information.

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