1
The Impact of S&P 500 Index Revisions on Credit Default Swap Market
By
Lindsay Baran
Department of Finance
Kent State University
Ying Li
School of Business
University of Washington Bothell
Chang Liu
Department of Finance
Kent State University
Zilong Liu
Department of Finance
Kent State University
And
Xiaoling Pu*
Department of Finance
Kent State University
JEL code: G12, G14
Key words: S&P 500 Index revision, credit default swap (CDS), information,
certification
_________________________
*Corresponding author: Department of Finance, College of Business Administration, Kent State University,
Kent, OH 44240; Phone: (330)672-1200; E-mail: [email protected].
We would like to thank Jim Miller for his insights, the helpful comments from participants in the research
seminar at Kent State University and the 2015 Eastern Finance Association (EFA) annual meeting in New
Orleans.
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The Impact of S&P 500 Index Revisions on Credit Default Swap Market
May 2015
Abstract
We investigate the impact of S&P 500 Index revisions on the credit default swap
(CDS) market using the abnormal CDS spread changes of event firms over a sample
period of 2001-2012. Our results show that only addition announcements significantly
negatively impact CDS spreads over both short- and long-term windows. The negative
abnormal CDS spread change is more pronounced (1) during the financial crisis period,
(2) for speculative grade firms over the short-term and (3) for investment grade firms
over the long-term. Our findings in the CDS market provide new evidence for the
certification hypothesis in S&P 500 Index revisions literature.
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1. Introduction
Ever since the first documentation of price effects of Standard and Poor’s (S&P)
Index revisions more than two decades ago, researchers have proposed multiple
hypotheses to explain the stock price increases (decreases) associated with addition to
(deletion from) the S&P 500 Index: the stock price reaction to these announcements
should either be information free, resulting from the downward-sloping demand curves
for index stocks; or it should involve information relevant in pricing the newly added or
removed stocks conveyed in the revision decision by S&P. Even though S&P repeatedly
claims that index revisions do not “in any way reflect an opinion on the investment merits
of the company,” past studies examine information related to changes in liquidity,
changes in investor awareness, certification of the performance of the newly added or
removed firms, or certification of the industry of the newly added firms (for example,
Jain, 1987; Dhillon and Johnson, 1991; Chen, Noronha and Singal, 2004; and Cai, 2007).
We examine whether S&P 500 Index revision involves information by exploring
the abnormal spread changes in credit default swap (CDS hereafter) market for the event
firms. If S&P 500 Index revisions do involve information relevant to firm value, we may
be able to observe not only price effects in the stock market, but price effects in other
related markets that reflect fundamentals of the firms, for example, credit market. The
structural model of Merton (1974) states that equity and debt are both contingent claims
on the underlying firm value, which suggests that factors that affect firm value would
influence both equity and bond markets. Previous literature, such as Dhillon and Johnson
(1991), documents that S&P 500 Index addition brings information not only to the equity
market but also to the options and bond markets. If S&P 500 Index revisions involve
information on equity value, then the same information might also impact debt value and
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the CDS market, which is a debt derivatives market in which investors trade credit risk of
individual firms.
Whereas past studies have used bond markets to detect the existence of
information from the S&P 500 Index revisions (Dhillon and Jonson, 1991), our study
looks into the CDS market which provides a more liquid setting (e.g., Longstaff, Mithal,
and Neis, 2005) to examine the reaction of credit market to equity index revision,
especially over short-term windows. We find that when measured as the difference in
average cumulative change of CDS spreads between event firms and the overall CDS
market, the abnormal change of CDS spreads for addition firms is negatively significant
over both short- and long-term windows. The difference in cumulative abnormal changes
between event firms and their industry and size matched peers remains significant, with a
confidence level of 5% or better.
Our findings are potentially consistent with the existence of information in S&P
500 Index revisions. Whereas prior studies establish that information may stem from
improved liquidity, investor awareness, or certification of future performance, we narrow
down the source of such information with the help of the uniqueness of the CDS market.
As participants in the CDS market are usually large institutions that have access to
information (Acharya and Johnson, 2007), it is likely that these institutions are already
aware of the existence of firms that have a presence in the CDS market prior to index
inclusion. We therefore argue that increased investor awareness may not explain our
findings of information captured by the CDS market.
Since the institutional investors who participate in the CDS market specialize in
evaluating credit risk and are sensitive to deteriorating credit conditions at firms with
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CDS contracts, deletion from the S&P 500 Index is unlikely to carry much additional
information to these institutions regarding the CDS spreads. We suggest that this may
explain why there is no significant difference in abnormal CDS spreads upon deletion
announcements.
Prior studies (Hegde and McDermott, 2003; Chen, Noronha, and Singal, 2004;
Becker-Blease and Paul, 2006) find that the positive information conveyed in S&P 500
Index inclusions pertains to sustained stock liquidity improvements. Given that
decreased CDS spreads are also associated with improved CDS liquidity (Bongaerts, de
Jong, and Driessen, 2011; Tang and Yan, 2014), we investigate the liquidity hypothesis
by (1) examining the effect of improved stock liquidity on the abnormal CDS spread
change following index additions and (2) exploring the liquidity change in the CDS
market. We do not find that the improvement in stock liquidity of addition firms to be
associated with the observed cumulative abnormal CDS spread changes. Neither do we
find significant liquidity improvement in the CDS market after a stock is added to the
S&P 500 Index. Thus, the liquidity hypothesis is unable to explain our findings.
We suggest that the certification hypothesis could explain our results, as
certification hypothesis argues that S&P 500 Index additions involve information on an
added firm’s future operating performance, potential longevity, or representativeness in
that firm’s industry (Dhillon and Johnson 1991; Denis, McConnell, Ovtchinnikov, and
Yu, 2003). Further subsample analyses show that the magnitude of the CDS spread
reaction varies with conditions that influence the correlation between markets. For
example, the cumulative abnormal CDS spread is more pronounced during the 2008-2009
financial crisis period when the correlation between equity and credit markets is higher.
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The difference is also more pronounced for addition firms with speculative grade rating
over short-term windows, even though it is more pronounced for addition firms with
investment grade rating over long-term windows. As correlation influences information
transmission and certification effect is stronger for lower rated firms, we maintain that
our findings provide new evidence that supports the certification hypothesis.
Our study contributes to several strands of literature. First, we find persistent and
significantly negative CDS cumulative abnormal changes for addition firms into the S&P
500 Index over both short- and long-term windows. Few studies explored the index
revision effect on credit markets (Dhillon and Johnson, 1991). Our study expands this
earlier work using the more liquid CDS market which facilitates quicker incorporation of
information than the corporate bond market (Blanco, Brennan, and Marsh, 2005).
Second, whereas it is challenging to distinguish empirically various hypotheses that
attempt to explain the S&P 500 Index addition effect (Shleifer, 1986), we narrow down to
the certification hypothesis as the most likely explanation for our findings in the CDS
market through various tests. We show that not only does credit quality play a role in the
magnitude of abnormal CDS spread changes upon S&P 500 Index revision, but the
timing of addition announcements matters. Consistent with the certification hypothesis,
CDS spreads respond more favorably during financial crisis period when overall market
credit risk is high.
The remainder of the paper is organized as follows. Section 2 reviews literature.
Section 3 describes the sample and provides descriptive statistics. Sections 4 present the
main findings. Section 5 conducts additional tests, and Section 6 concludes.
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2. Literature review and motivation
Prior studies document a stock price reaction to inclusion in or removal from the
S&P 500 Index. These studies find permanent stock price increases after S&P 500 Index
inclusion and temporary stock price declines upon S&P 500 Index removal. One prior
study (Dhillon and Johnson, 1991) explored the impact of S&P 500 Index revisions on
the credit market using bonds, but there is little knowledge of the impact on the credit
derivatives market.
To explain the stock price reaction after S&P 500 Index revision announcements,
researchers have proposed several explanations which can be categorized into five
competing hypotheses.1
The first hypothesis, downward-sloping demand curve
hypothesis, argues that there is no information conveyed in S&P 500 Index revisions and
the price effect arises because non-index stocks are imperfect substitutes for index stocks
(Scholes, 1972). This hypothesis is supported by some previous work (Shleifer, 1986;
Lynch and Mendenhall, 1997; Kaul, Mehrotra and Morck, 2000; Greenwood, 2005). A
second explanation is that temporary price pressure from index fund rebalancing drives
these price changes (supported by Harris and Gurel, 1986; Elliott and Warr, 2003;
Shankar and Miller, 2006; Hrazdil, 2009). Given that these two hypotheses are primarily
related to the supply and demand for stocks, our exploration of the credit market in this
study cannot lend additional support nor rule out these hypotheses.
The remaining three hypotheses concur that index revisions are not information-
free events but each proposes a different form of information transmission. The
certification hypothesis deals with whether S&P 500 Index inclusion or removal conveys
1 A more detailed description of the literature about these hypotheses can be found in Kappou, Brooks, and
Ward (2008) and Baran and King (2012).
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unknown information about future performance to explain the price response to
announcements. Jain (1987) provides empirical evidence that S&P 500 Index addition
conveys information to investors, which might change their perceptions of the stocks.
Dhillon and Johnson (1991) investigate stock, bond, and option prices around the
announcements of the listings in the S&P 500 Index and find bond and option prices to
move with stock prices from 1978 to 1988, suggesting that there is information involved
in these announcements that impacts the equity, debt, and option markets. Denis,
McConnell, Ovtchinnikov and Yu (2003) and Platikanova (2008) also argue that addition
to the S&P 500 Index is not information free by discovering earnings improvement
around the announcement date. In addition, Cai (2007) finds the positive addition
information may spread to the industry of the company.
On the other hand, Shleifer (1986) confirms the positive price effects after the
S&P 500 Index inclusion but argues that the inclusion does not mean that the firm has
good quality since the abnormal returns are not related with the bond ratings. Harris and
Gurel (1986) state that the addition events to the S&P 500 Index do not carry specific
information since the stock prices reverse back over the 30 days following the
announcement in their sample. Beneish and Gardner (1995) support this argument by
investigating the price and the trade volume of newly listed Dow Jones Industrial
Average firms. Hrazdil and Scott (2009) find that improved earnings following index
inclusions are due to these firms’ larger discretionary accruals, not because of the
information effect from the additions.
The investor awareness hypothesis draws on the observation that the price
responses to inclusion and removal are asymmetric. Chen, Noronha and Singal (2004)
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show that the shadow cost (Merton, 1987) declines upon inclusion due to increased
investor awareness but does not decline on index removal since investors do not become
unaware of removed stocks. Finally, the liquidity hypothesis proposes that inclusion to
the index brings sustained improvements in stock liquidity and reductions in bid-ask
spread, consistent with an increase in price. Amihud and Mendelson (1986) propose that
firms included into the S&P 500 Index tend to attract more institutional holdings and
larger trading volume. This trend leads to less information asymmetry and the stock
becomes more liquid, which moves the stock price upward. Following this explanation,
Beneish and Gardner (1995), Chung and Kryzanowski (1998), Hegde and McDermott
(2003), Chen, Noronha and Singal (2004), and Becker-Blease and Paul (2006) find
consistent empirical evidence from the S&P 500 Index and other U.S. market indices.
Dhillon and Johnson (1991) demonstrate that information is involved in S&P 500
Index additions by showing price effects in bonds and options markets. The CDS market
is more liquid than the bond market as new information is impounded into CDS spreads
more rapidly than into corporate bond prices (Blanco, Brennan, and Marsh, 2005). This
feature of the CDS market adds to the benefits of investigating the credit market reaction
using the CDS spreads. If S&P 500 Index revision announcements carry information,
inclusion into the index should be associated with abnormal CDS spread decrease and
exclusion from the index should be associated with abnormal CDS spread increase. By
examining the market reaction in the CDS market which trades on information that is less
driven by changing demand for index stocks, we can focus on whether information in
S&P 500 Index revision announcements affects the credit market and how such
information is impounded.
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Certain features of the CDS market also help us differentiate the channels through
which the information involved in the announcements impounds into the credit market.
For example, since participants of the CDS market are usually institutional investors who
are well-informed (Acharya and Johnson, 2007), we do not expect the announcements to
change the awareness of the CDS reference entity.2
If information is involved in the S&P 500 Index revision announcements, the
reaction in CDS market would vary with the level of integration between equity and
credit markets. Previous literature has documented a low correlation between stock
returns and credit spread changes (Collin-Dufresne, Goldstein, and Martin, 2001; Blanco,
Brennan, and Marsh, 2005). However, correlations between equity and credit markets
are also higher in the crisis (Kapadia and Pu, 2012) as market integration is higher in
financial crises (Bekaert, Harvey, and Ng, 2005). Thus it is possible that the S&P 500
Index revision information would have more pronounced effect on the CDS market in the
recent 2008-2009 crisis.
Previous studies (e.g., Kapadia and Pu, 2012) also document that firms with low
credit ratings usually have larger correlations between stock returns and credit spread
changes than investment grade firms. This suggests that the information from the equity
market may have more influence on speculative grade firms since correlations between
equity returns and credit spread changes are larger in these firms. In particular, if the S&P
500 Index addition announcements contain positive information about the firm, we
expect that firms with higher default risk will benefit more.
2 CDS contract provides insurance against a default by a firm, which is known as the reference entity (Hull,
Predescu, and Whilt, 2004)
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3. Data and sample statistics
3.1. Sample construction
We analyze the abnormal changes in the CDS spreads whose underlying reference
firms were added into or removed from the S&P 500 Index from January 2001 to
December 2012.3 The S&P 500 Index revision events are hand-collected from changes in
the monthly lists of index constituents in Compustat (Baran and King, 2012). We then
use the Lexis-Nexis news retrieval system to verify the announcement day of the index
revisions. The sample excludes stocks which were added due to a merger or takeover,
spinoff, or change in share and contains a total of 248 addition and 241 deletion firms.
We obtain information on stock returns and number of shares outstanding from the
Center for Research in Security Prices (CRSP), and relevant firm-level financial data
from the quarterly updated Compustat database.
We collect information on CDS spreads, depth, and rating from Markit, a leading
provider of CDS data for price discovery, risk and valuations, and end-of-day price
updates. There are 989 North American firms in our CDS data from Markit in the period
from 2001 to 2012. We use the five-year CDS spreads since they are the most liquid
among different maturities. The CDS spreads represent the premium that the insurance
buyer pays to exchange for the residual value of the debt from the insurance protector in
case default occurs. We use the “composite credit rating,” which is the average rating of
Fitch Ratings, Moody’s Investors Service, and S&P’s rating services, provided in Markit
as our measure of credit rating.
3 Our sample of S&P 500 Index changes includes a longer time period, however we limit the time period
given the data availability on CDS spreads in the Markit database.
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Even though Markit has quite thorough coverage of the CDS markets, not every
firm has CDS contracts traded on them. After merging with the Markit database, we find
128 addition firms and 152 deletion firms with available CDS data. Further, we require
event firms to have CDS spread observations around the announcement dates. Our final
sample contains 63 newly added firms and 42 firms that are dropped from the S&P 500
Index. Each year the number of firms which are added into or removed from the index
varies. In our sample, more firms are added into the index in 2006 and 2007. Among the
addition firms, 42 firms have investment grade ratings (ratings of BBB or above) and the
remaining firms have speculative ratings (ratings that are below BBB) in the Markit
database.
To ensure that credit rating changes do not confound our findings, we examine the
credit rating change history for each event firm around the index revision announcements.
There are no credit rating changes for all short-term windows up to 15 days after the
announcements. We find multiple credit rating changes for 13 firms over long-term
windows, but the changes are usually in nearby rating categories, for example, from AA
to A and back to AA. We believe that these rating changes do not confound our long-
term results either.
3.2. Summary statistics
Panels A and B of Table 1 present the summary statistics for 63 addition firms
and 42 deletion firms, respectively. We compute the statistics across all the observations
in the whole sample period. CDS spread is the daily composite five-year CDS spread in
basis points. Market capitalization is calculated by the daily stock price times the number
of shares. Equity volatility is the annualized standard deviation calculated based on daily
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returns. Leverage is equal to the ratio of book value of debt to the sum of book value of
debt and market capitalization. The book value of debt is computed as the sum of long-
term debt and current liabilities in debt. Return on assets (ROA) is defined as net income
divided by total assets. Market-to-book ratio is defined as the ratio of market value to
book value of equity.
We notice major differences between addition and deletion firms in terms of their
average size: the market capitalization is $11.33 and $6.13 billion, and total assets are
$33.60 and $10.33 billion, respectively. Even though both groups have similar average
leverage, the profitability and valuation ratios are higher for the addition firms, with ROA
of 1.01% for newly included firms, compared to 0.41% for the deletion firms. Despite
similar leverage levels, we observe that the average CDS spread for the addition firms is
144.89 basis points (bps), much lower than the average spread for deletion firms of
229.68 bps.
Furthermore, in untabulated results, we compare firm characteristics between
those with and without CDS contracts for all firms that have had S&P 500 Index
revisions. There is no significant difference in size, equity volatility, leverage, ROA, total
assets, and market-to-book ratio between our sample firms and the group without CDS.
This suggests that our sample is not contaminated by selection bias.
[Table 1 about here]
4. Effect of S&P 500 Index Revision on CDS Spreads
Addition to and deletion from the S&P 500 Index involve asymmetric stock price
responses, as documented in Chen, Noronha, and Singal (2004). In this section, we
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investigate the effects on abnormal CDS spreads from the S&P 500 Index revisions in
both the short- and long-term.
4.1. Short-term effects on abnormal changes of CDS spreads
Table 2 reports the market adjusted cumulative abnormal changes of CDS spreads
for event firms in various short-term windows. We use the cross-sectional CDS spread
average from the whole Markit CDS sample as the benchmark index to calculate market
adjusted abnormal CDS spread changes. The abnormal change for an event firm is
computed as the difference between the firm’s CDS spread changes ((CDSit - CDSit-1)/
CDSit-1) and the market CDS spread changes, i.e., the average change of all available
CDS spreads in our CDS Markit sample, computed as ((CDSmt - CDSmt-1)/ CDSmt-1) where
𝐶𝐷𝑆𝑚𝑡 =∑ 𝐶𝐷𝑆𝑗𝑡𝑁𝑗=1
𝑁.4 We apply cross-sectional t-tests, sign tests, and signed rank tests to
investigate whether the cumulative abnormal CDS changes are significantly different
from zero. The sign and signed rank tests are non-parametric tests, which do not require
the data to be normally distributed. Although the signed rank test has more statistical
power than the sign test, the latter would have more statistical power for data with
outliers or a heavy-tailed distribution. These two tests are similar to the t-test and serve as
additional robustness checks.
We report the results from both addition and deletion firms.5 For the addition
sample, we find significant reductions in abnormal CDS spreads upon index inclusion.
The CDS spreads react strongly to the inclusion event in the short windows around the
4 We perform the robust tests using (CDSit - CDSit-1) as the spread changes, and the results are similar.
These results are available upon request. 5 In a robustness test, we winsorize the abnormal CDS spread changes at the top and bottom one percentile
levels to mitigate the influence from outliers and compute the cumulative abnormal changes in each event
window. The results are similar as those reported in the paper. The results are not reported here to save
space, but available upon request.
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announcement date. There are strong negative cumulative abnormal changes two days
before the announcement date. For example, in the window [AD-2, AD+1] (AD is the
abbreviation for announcement date), we observe significant cumulative abnormal
change of -1.05 percent. We also observe further negative movement in the credit market
in the windows [AD-2, AD+n], in which n is 15 days or fewer. Our evidence is consistent
with the findings in the equity market,6 which document short-term stock price surge
around the announcement date that a firm is added to the S&P 500 Index (Harris and
Gurel, 1986; Lynch and Mendenhall, 1997).
We do not find significant reactions in the CDS market upon announcement of the
firms’ deletion from the S&P 500 Index in all event windows in similar tests, where the
abnormal CDS spread change is similarly measured. This finding is contrary to those in
the equity market, which document a stock price decline immediately after the
announcement but a reversal after 60 days (e.g., Chen, Noronha and Singal, 2004). As the
CDS market captures the downside risk, CDS market participants probably possess
similar information on the reference entity firm that is deleted from the S&P 500 Index.
Thus unlike its price effect in the equity market, the information of the S&P 500 Index
removal has little or no impact on the CDS market. Due to the insignificant effect of
deletion news on CDS spreads, we focus on addition announcements in our subsequent
analysis.7
[Table 2 about here]
6 We also check the stock abnormal returns around the S&P 500 Index revisions [AD-1, AD+1] in our
sample, and find both addition and deletion have strong impact on the stock market, which is consistent
with the previous literature. The results are available upon request. 7 We conduct all the empirical tests described in this paper for both addition and deletion firms and report
only results for addition firms as the results for deletion firms are not significant. These results are available
upon request.
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4.2.Effects on abnormal changes of CDS spreads in the matching sample
We next construct a matching sample by industry and size and compare the
difference in abnormal CDS spread change between the event firms and the matches. As
Spiegel points out in his 2015 EFA Annual Meeting keynote speech (Spiegel and Tookes,
2015), a broad match based on two-digit SIC code may not correct for industry specific
changes among firms as the two firms can be very faraway in the nature of their
businesses. Since the CDS market participants are well-informed, the information that
causes the abnormal CDS spread change upon addition announcements is likely to be
S&P’s confirmation of the reference entity firm’s representativeness in its industry.
Therefore a closer match is desirable to identify the existence of such information.
We identify industry matches based on the four-digit SIC codes of the event
firms.8 Then we choose firms within the same industry and with similar sizes as the
event firms to construct the matching sample.9 Since not every traded firm has CDS data
and S&P 500 Index addition firms are usually large, we find matching firms for about
two thirds (2/3) of the event firms. This further reduces our sample for this analysis to 42
index inclusions. We compare the firm characteristics (size, equity volatility, leverage,
market-to-book ratio) of the matching firms and the event firms. Overall, our matching
sample mimics the characteristics of the event firms quite well, as the t-test statistics of
the differences on market capitalization, total assets, ROA and stock volatility range
between 0.10 and 0.82. The leverage of the matching firms is slightly higher than the
event firms but the difference remains statistically insignificant (t-stat=1.60). The
8 We also use the three-digit and two-digit SIC code to match for industry, and find significant differences
between the newly added firms and SIC matches. 9 We chose firms in the SIC code matching industry, and then select the firms that are closest in size to the
event firms.
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matches also tend to have slightly higher market-to-book ratio (t-stat=1.76). We report
the above in Panel A of Table 3.
The results on the abnormal CDS spread change of the event firms, the matches,
and their differences are presented in Panel B of Table 3. We find that only event firms
have a significantly negative abnormal CDS spread change while their close matches do
not respond to the addition announcements in all event windows. With the close industry
matches based on four-digit SIC code, the difference in cumulative abnormal CDS spread
change between the event firms and the matches is statistically significant in all the short-
term windows, with a confidence level of 5% or better.
To further investigate the effect of addition announcement on the industry, we
investigate whether the cumulative abnormal CDS spread changes vary with event firms’
industry weight. This test is based on arguments in Cai (2007), who shows that as S&P
500 Index addition brings new information to the industry, the stock price reaction of the
matches is smaller in magnitude when the event firm’s industry weight is high. Our
untabulated results from the test find no statistically significant difference for the
abnormal CDS spread changes of the matches in multiple event windows. Therefore,
despite the findings documented in the equity market, we find little evidence that S&P
500 Index addition announcements involve information for matching firms in the CDS
market. Next, we conduct more empirical tests in an attempt to narrow down the possible
explanations for our findings.
[Table 3 about here]
4.3. Liquidity effect
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One possible reason for strong reduction of abnormal CDS spread changes in both
short- and long-term is liquidity improvement of the event firms’ CDS contracts after the
addition which reduces information asymmetry and leads to the decrease of credit risk
(Bongaerts, de Jong, and Driessen, 2011; Tang and Yan, 2007). Hegde and McDermott
(2003) make such arguments for the added stocks after S&P 500 Index announcements
by showing a sustained liquidity increase in the added stocks. Many other studies also
document lower bid-ask spreads due to the index addition, such as Shleifer (1986), and
Beneish and Whaley (1996).
To explore this possibility, we investigate the liquidity changes in the CDS market
after the S&P 500 Index addition announcement. We use market depth to measure CDS
liquidity, which computes the number of the contributors for the price quote on each day.
We do not have access to the CDS trading volume data from the Depository Trust &
Clearing Corporation. The bid or ask prices are not available through the Markit database
either, so we do not have these alternative liquidity measures for the CDS market. Instead,
we use market depth, which is widely used in CDS studies (Kapadia and Pu, 2012; Loon
and Zhong, 2014) and properly captures the liquidity level in the CDS market.
Table 4 presents the addition announcement effect on CDS market liquidity in the
full sample, a subsample with investment grade firms only, and a subsample with
speculative grade firms only, respectively. We report the results on liquidity change over
a short-term window in Panel A. Across all the short-term windows around the
announcement date, the average market depth is stable with about six contributors for
each price quote. We do not observe substantial improvement or deterioration of the
credit market liquidity before or after the addition. In several t-tests for the difference two
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days before (AD-2) announcement and n days after announcement (AD+n, n=1, 2, 3, 5,
10, and 15), the t-statistics are all insignificant. The robust results across all the sub-
samples suggest that the CDS market liquidity over short-term does not change because
of the addition events.
Panel B of Table 4 reports the results on liquidity change for the three groups of
firms over long-term windows. Not surprisingly, we do not find significant depth changes
for the event firms in various window lengths. All the t-test statistics in the event
windows are insignificant. The long-term depth does not experience substantial change
due to the addition news, consistent with the previous findings in short-term windows.
Therefore, abnormal CDS spread declines following inclusion cannot be explained by
improvement in CDS liquidity. To see whether improvements in stock liquidity are
related to CDS spread declines, we estimate the impact of the changes in stock liquidity
on the cumulative CDS spread change in a multiple regression setting and find that the
improved stock market liquidity cannot explain our findings.10
In summary, the insignificant liquidity changes in market depth around the
addition event suggest that liquidity is not the main driver for the substantial abnormal
changes in the CDS spreads. This is not surprising, as the CDS market is a contract-based
market where liquidity is less influential (Longstaff, Mithal, and Neis, 2005). Since stock
liquidity does not explain the abnormal changes in the CDS spreads, we conclude that
liquidity hypothesis is not a good explanation for the significant reduction in cumulative
abnormal CDS spread change of the addition firms.
[Table 4 about here]
4.4 Effects on abnormal changes of CDS spreads in the long-term
10
We follow Amihud (2002) to measure the stock market liquidity and report these results in Table 8.
20
While many studies (Harris and Gurel, 1986; Hegde and McDermott, 2003;
Becker-Blease and Paul, 2006) examine the short-term reaction of stock prices to S&P
500 Index addition, Chan, Kot, and Tang (2013) investigate long-term effects of S&P 500
Index revisions and document significant price effects. We carry our investigation of
S&P 500 Index addition effect in the credit market to time periods up to three years to
examine whether the addition events convey information to the credit market in the long-
term.11
Specifically, we examine the long-term impact of S&P 500 addition on abnormal
CDS spread changes.
If S&P 500 Index addition carries long-term positive information of the firm, the
credit spreads should decrease and should not reverse in the long-term. Table 5 presents
the long-term cumulative abnormal CDS spread changes in various event windows across
the whole sample. We compare the firm characteristics, such as size, leverage, and
market-to-book ratio, at the beginning and end of the event windows, and do not find
significant difference. However, in one, two, and three years12
after the announcement
date, the CDS cumulative abnormal changes are negative and significant at one percent
level. Our findings suggest that firms added to the S&P 500 Index have shrinking CDS
spreads in the long term. One possible reason could be that these added firms may be
subject to a higher level of scrutiny by investors and analysts which helps to reduce
information asymmetry (Denis, McConnell, Ovtchinnikov and Yu, 2003) and improves
firm performance. The strong CDS price reaction in the long-term suggests that the
favorable information from S&P 500 Index addition is persistent, and the short-term
11
We check the long-term reaction in the abnormal CDS changes of the deletion firms and find that
deletion from the S&P 500 has little impact in the CDS market. Results are available upon request. 12
We assume that there are about 252 trading days in a year so that one-, two-, and three-year windows
correspond to 252, 504, and 756 trading days.
21
decrease in abnormal CDS spreads does not reverse in the long-term. We also checked
the long-term reaction for deletion firms, but did not find significant results.
[Table 5 about here]
5. Additional Tests
5.1 Subsample Analysis
Market integration is stronger in the financial crisis (Bekaert, Harvey, and Ng,
2005; Allen and Gale, 2000). If S&P 500 Index addition involves information flow from
the equity market to the CDS market, we expect to observe a more pronounced effect of
the S&P 500 Index additions on the CDS market during crisis periods. Table 6 reports the
results of abnormal CDS changes in various short-term windows in the crisis and non-
crisis periods with the financial crisis period being defined as from 2008 to 2009.13
Out of
the 63 addition firms, there are 13 additions during the financial crisis period and 50 out
of the crisis period.
We find that the cumulative abnormal CDS spread changes are significant in all
the short-term windows when additions occurred during the crisis, but firms with
additions during the non-crisis period experience CDS spread declines that are largely
statistically insignificant. Specifically, in the window [AD-2, AD+1], the average CDS
spread decrease for additions during crisis period is about 2.57 percent, which suggests a
strong reaction in the CDS market to the index inclusion announcement. However, for
additions occurring during non-crisis periods, only in one post-announcement window
([AD-2, AD+10]) is the cumulative abnormal CDS change significantly different from
zero, although all windows show CDS spread declines.
13
We do not examine the events in the dot-com crash of 2002 due to the small sample size.
22
Our observations in Table 6 are consistent with the various studies that report the
low correlations between the equity and credit markets (e.g., Collin-Dufrense, Goldstein
and Martin, 2001; Blanco, Brennan and Marsh, 2005) in the tranquil time period. Thus
even if the S&P 500 Index inclusion announcement involves relevant information on firm
value, it may not be reflected in the CDS spreads during non-crisis periods. Therefore,
our finding that the impact of S&P 500 Index addition is more pronounced during the
crisis could be due to the higher correlation between the stock and credit markets during
this period of time (Kapadia and Pu, 2012) and the contagion effect in the financial crisis
(Allen and Gale, 2000).
[Table 6 about here]
Next, we investigate how firms with different credit ratings react to the S&P 500
Index additions in both short- and long-term and report the results in Table 7. Addition to
the S&P 500 Index could be a certification of good quality (Chen, Noronha, and Singal,
2006; Baran and King, 2012), and there will be a differential effect on addition firms with
varying credit quality. Thus, our expectation is that the addition of speculative grade
firms would send stronger positive signals to the credit market than those investment
grade firms, leading to greater reductions in the abnormal CDS spreads.
Out of the 63 addition firms, there are 42 additions with investment grade ratings
and 21 with speculative grade ratings. Consistent with our conjecture, we observe the
average magnitude of cumulative abnormal CDS spread changes for speculative grade
firms is larger than that of the investment grade firms, by about one to five percentage
points in the short-term. For example, in the window [AD-2, AD+5], speculative grade
23
firms have an average of 2.62 percent CDS spread reduction while investment grade
firms do not significantly respond to the index addition news.
Panel B of Table 7 shows an interesting fact that the reaction of speculative grade
firms is not as large as that of investment grade firms in longer windows. In the [AD-2,
AD+252] window, the reaction of the speculative rated firms is stronger than investment
grade firms, while in the ([AD-2, AD+504] window the average cumulative abnormal
CDS spread change of the investment grade firms is more than 10 percentage points
lower than that of the speculative grade firms. This contrasts with the earlier observation
in the short-term windows. Therefore, as addition news provides certification from S&P,
which is both a rating agency and the index provider, speculative grade firms benefit
more in the short-term. For lower rated firms, CDS investors may pay more attention to
the short-term changes in default risk, since they are closely related to the debt valuation
of these firms. Thus, the positive news may have more immediate effect for speculative
grade firms in the short-term. Even though the positive impact does not last over the
long-term, it does not reverse either. In two of the long-term after-announcement
windows, the long-term CDS cumulative abnormal changes for speculative grade firms
are negative and marginally significant. The cumulative abnormal changes for the
investment grade firms are significant for all the long-term windows. These findings are
also consistent with past literature on certification effect, which suggests that it is more
pronounced with smaller and less prestigious firms (Megginson and Weiss, 1991).
[Table 7 about here]
Crises are hard to predict and represent a relatively exogenous shock (Lemmon
and Lins, 2003; Chen, Ma, Malatesta and Xuan, 2011). Furthermore, we do not expect
24
demand for index stocks to be stronger during financial crises periods or for stocks with
speculative rating. Even though it is hard to differentiate the demand-related hypotheses
and the certification hypothesis using CDS market responses to S&P 500 Index addition
announcements, we believe that results from our subsample analysis are more consistent
with the certification hypothesis that suggests information is involved in S&P 500 Index
revisions.
5.2 Multivariate Regression Analysis
To explore whether our subsample results remain robust after controlling for other
firm characteristics that influence CDS spreads, we conduct a regression analysis and
present the results in Table 8. The dependent variable is the cumulative abnormal CDS
spread changes in the window [AD-2, AD+15]. Specifically, we control for firm size,
leverage, market-to-book ratio, and ROA, as well as stock liquidity, denoted as Liquidity
and measured following Amihud (2002). We also include two constructed dummy
variables: Crisis that takes value 1 for additions during the crisis period and 0 otherwise;
InvestGrade that takes value 1 for reference entity firms with investment grade and 0
otherwise. Similar to the results in Table 6, the coefficient on Crisis is negative and
significant at the 5% level. In addition, supporting the findings in Table 7, the coefficient
on InvestGrade is positive and significant. The coefficient on Liquidity is not significant.
Since Liquidity is correlated with Crisis (the correlation coefficient is 0.51) and the
estimation may be subject to multicollinearity concerns, we report the results from a
regression without including Liquidity in a separate column (2). The coefficients on
Crisis and InvestGrade remain significant with a slightly better confidence level.
[Table 8 about here]
25
6. Conclusions
To the best of our knowledge, this study is the first to provide a comprehensive
analysis of the CDS market reaction to the firms added to or deleted from the S&P 500
Index. During the period from 2001 to 2012, we find that the CDS market reacts
significantly to the favorable addition information in both short- and long-term windows.
Deletion from the index has little impact on the CDS market. Different from the findings
in the equity market, the addition information does not have impact on the industry peers
of the event firms. Liquidity changes in the CDS market are insignificant and do not
explain the cumulative abnormal CDS spread changes. Neither does stock liquidity
improvement.
Our findings show that the CDS market absorbs the S&P 500 Index revision
information in a timely manner during the financial crisis while the effect is weaker in the
non-crisis period. In addition, our results indicate that S&P 500 Index additions convey
more positive information to firms with speculative credit rating in the short run. In the
long run, the investment grade firms have persistent negative abnormal CDS changes
while the results of the speculative grade firms are weaker but do not reverse. These
findings support the hypothesis that addition to the S&P 500 Index provides a quality
certification of the firm. Future research could use an expanded sample of revision firms
to explore other factors that may influence how information flows between the equity and
credit markets.
26
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29
Table 1
Summary statistics
This table presents the summary statistics for the 63 addition firms in Panel A and the 42 deletion
firms’ statistics are in Panel B. Our sample period is from January 2001 to December 2012. CDS
spread is the daily composite five-year CDS spread in basis points. Market capitalization is
calculated by the daily stock price times the number of shares. Equity volatility is the annualized
standard deviation calculated based on daily returns. Leverage is equal to the ratio of book debt
value to the sum of book debt value and market capitalization. Return on assets (ROA) is defined
as net income divided by total assets. Market-to-book ratio is defined as the ratio of market value
to book value of equity. We compute the statistics across all the observations in the whole sample
period.
Panel A: Summary statistics for 63 addition firms
Mean Std. Dev Min 25th Median 75th Max
CDS spread (basis point) 144.89 92.71 29.34 77.72 114.77 196.49 449.29
Market cap. (billions) 11.33 12.65 2.68 5.75 7.26 12.26 71.91
Leverage 0.29 0.17 0.02 0.16 0.28 0.39 0.85
Total assets (billions) 33.60 107.40 3.07 6.59 8.94 14.53 724.84
Return on assets (%) 1.01 0.99 -0.83 0.38 0.70 1.59 3.81
Market-to-book ratio 2.56 1.63 0.67 1.65 2.10 3.16 10.75
Stock volatility 0.41 0.14 0.18 0.32 0.40 0.47 0.94
Panel B: Summary statistics for 42 deletion firms
Mean Std. Dev Min 25th Median 75th Max
CDS spread (basis points) 229.68 158.61 37.42 97.04 223.64 313.62 727.11
Market cap. (billions) 6.13 6.51 1.07 2.29 3.70 7.35 33.21
Leverage 0.30 0.16 0.06 0.21 0.25 0.39 0.75
Total assets (billions) 10.33 11.36 1.87 3.20 5.39 13.63 64.02
Return on assets (%) 0.41 0.96 -1.71 -0.16 0.49 0.86 2.87
Market-to-book ratio 3.72 5.55 0.82 1.32 2.01 3.29 28.00
Stock volatility 0.47 0.13 0.20 0.38 0.46 0.55 0.73
30
Table 2
Short-term CDS cumulative abnormal spread changes for event firms
The table presents market adjusted cumulative abnormal changes of the CDS spreads in various
windows around the announcement day (AD). The third and fourth rows report p values from the
Wilcoxon sign test and Wilcoxon sign rank test, respectively. T-values are reported in the
parenthesis. *, ** and *** represent the statistical significance at the 10%, 5%, and 1% levels,
respectively.
Windows Statistics Addition Firms Deletion Firms
[AD-2, AD+1] Mean -1.05%** 0.85%
t-value (-2.03) (0.50)
Sign test p-val. 0.0052 0.6440
Sign rank p-val. 0.0063 0.4412
[AD-2, AD+2] Mean -1.27%** 0.33%
t-value (-2.15) (0.18)
Sign test p-val. 0.0052 0.4408
Sign rank p-val. 0.0067 0.8202
[AD-2, AD+3] Mean -1.42%** 0.43%
t-value (-2.28) (0.22)
Sign test p-val. 0.0022 0.6440
Sign rank p-val. 0.0023 0.8394
[AD-2, AD+5] Mean -1.52%** 0.54%
t-value (-1.98) (0.23)
Sign test p-val. 0.0226 0.2800
Sign rank p-val. 0.0176 0.6987
[AD-2, AD+10] Mean -3.49%*** -1.41%
t-value (-3.19) (-0.53)
Sign test p-val. 0.0769 0.6440
Sign rank p-val. 0.0028 0.2905
[AD-2, AD+15] Mean -3.33%** -0.56%
t-value (-2.13) (-0.18)
Sign test p-val. 0.8013 0.6440
Sign rank p-val. 0.0726 0.5342
N 63 42
31
Table 3
Short-term CDS cumulative abnormal spread changes in the matching sample
This table presents the summary statistics and market adjusted cumulative abnormal changes of
CDS spreads in the windows around the announcement day (AD) for both the newly added firms
to the S&P 500 Index and a matching sample by four-digit SIC code and firm size. We present
the difference between the abnormal CDS spread changes for the event and matching firms in
Panel A and the comparison of cumulative abnormal CDS spread changes in Panel B. The third
and fourth rows of each block in Panel B report the p values from the Wilcoxon sign test and
Wilcoxon sign rank test, respectively. T-values are reported in the parenthesis. *, ** and ***
represent the statistical significance at the 10%, 5% and 1% levels, respectively.
Panel A: Summary statistics
Event
(1)
Matching
(2)
Difference
(2)-(1) T-value
CDS spread (basis point) 144.90 186.50 41.57 1.59
Market cap. (billions) 11.33 13.75 2.42 0.82
Leverage 0.29 0.34 0.05 1.60
Total assets (billions) 33.60 35.75 2.15 0.10
Return on assets (%) 1.01 1.07 0.07 0.23
Market-to-book ratio 2.56 6.23 3.67* 1.76
Stock volatility 0.41 0.43 0.02 0.67
32
Table 3 (continued)
Panel B: Comparison of cumulative abnormal CDS spread changes
Windows Statistics Event
(1)
Matching
(2)
Difference
(1)-(2)
[AD-2, AD+1] Mean -1.28%** 1.16% -2.44%**
t-value (-2.08) (1.20) (-2.69)
Sign test p-val. 0.1173 0.7552 0.0064
Sign rank p-val. 0.0515 0.3212 0.0120
[AD-2, AD+2] Mean -1.64%** 0.96% -2.60%**
t-value (-2.25) (0.87) (-2.27)
Sign test p-val. 0.0596 0.7552 0.0115
Sign rank p-val. 0.0346 0.5113 0.0137
[AD-2, AD+3] Mean -1.84%** 0.83% -2.67%**
t-value (-2.59) (0.73) (-2.13)
Sign test p-val. 0.0195 1.0000 0.0079
Sign rank p-val. 0.0117 0.7917 0.0273
[AD-2, AD+5] Mean -2.47%*** -0.01% -2.46%*
t-value (-2.93) (-0.01) (-2.00)
Sign test p-val. 0.0079 0.6440 0.4408
Sign rank p-val. 0.0049 0.8202 0.0980
[AD-2, AD+10] Mean -4.22%*** 0.09% -4.30%**
t-value (-3.02) (0.06) (-2.07)
Sign test p-val. 0.0436 0.8776 0.8776
Sign rank p-val. 0.0020 0.7917 0.1509
[AD-2, AD+15] Mean -4.12%** 0.24% -4.36%
t-value (-2.03) (0.14) (-1.63)
Sign test p-val. 0.2800 0.4408 0.6440
Sign rank p-val. 0.0393 0.6805 0.2037
N 42 42 42
33
Table 4
Short-term and long-term market depth changes
Table 4 reports the liquidity changes in the CDS market over different windows. Depth is used as
a liquidity measure, which computes the number of contributors for the price quote. T-values are
reported in the parenthesis. *, ** and *** represent the statistical significance at the 10%, 5% and
1% levels, respectively. Panel A represents short-term results of addition firms and panel B
represents long-term results of addition firms.
Panel A: Short-term liquidity changes
Addition firms Investment grade Speculative grade
AD-2 vs. AD+1 0.0317 -0.1667 0.4286
(0.17) (-0.84) (1.12)
AD-2 vs. AD+2 0.0000 -0.1905 0.3810
(0.00) (-0.93) (0.90)
AD-2 vs AD+3 0.0794 0.0714 0.0952
(0.42) (0.48) (0.20)
AD-2 vs. AD+5 0.0635 0.1905 -0.1905
(0.32) (0.84) (-0.49)
AD-2 vs. AD+10 -0.0635 0.1667 -0.5238
(-0.30) (0.75) (-1.19)
AD-2 vs. AD+15 -0.2857 -0.2857 -0.2857
(-1.56) (-1.45) (-0.73)
Panel B: Long-term liquidity changes
Addition firms Investment grade Speculative grade
AD-2 vs. AD+252 0.0806 0.0000 0.2500
(0.19) (0.00) (0.33)
AD-2 vs. AD+504 -0.1525 -0.1463 -0.1667
(-0.28) (-0.23) (-0.15)
AD-2 vs. AD+756 -0.5385 -0.3684 -1.0000
(-0.77) (-0.41) (-1.17)
34
Table 5
Long-term CDS cumulative abnormal spread changes
This table reports the long-term cumulative abnormal changes of CDS spreads in investment
grade firms and speculative grade firms. T-values are reported in the parenthesis. The third and
fourth rows of each block report the p values of the Wilcoxon sign test and Wilcoxon sign rank
test, respectively. *, ** and *** represent the statistical significance at the 10%, 5% and 1%
levels, respectively.
Windows Statistics All
[AD-2, AD+252] Mean -0.2248***
t-value (-3.32)
Sign test p-val. 0.1299
Sign rank p-val. 0.0011
[AD-2, AD+504] Mean -0.4241***
t-value (-4.21)
Sign test p-val. 0.0003
Sign rank p-val. <.0001
[AD-2, AD+756] Mean -0.4818***
t-value (-3.40)
Sign test p-val. 0.0052
Sign rank p-val. 0.0002
N
63
35
Table 6
Short-term CDS cumulative abnormal spread changes in the crisis and non-crisis periods
This table presents market adjusted cumulative abnormal changes of CDS spreads in the event
windows around the announcement day (AD) in the crisis (2008-2009) and non-crisis periods.
The third and fourth rows of each block report the p values from the Wilcoxon sign test and
Wilcoxon sign rank test, respectively. T-values are reported in the parenthesis. *, ** and ***
represent the statistical significance at the 10%, 5% and 1% levels, respectively.
Windows Statistics Crisis Firms Non-crisis Firms
[AD-2, AD+1] Mean -2.57%** -0.66%
t-value (-3.00) (-1.09)
Sign test p-val. 0.0923 0.0328
Sign rank p-val. 0.0061 0.0885
[AD-2, AD+2] Mean -3.07%** -0.80%
t-value (-2.83) (-1.18)
Sign test p-val. 0.0225 0.0649
Sign rank p-val. 0.0061 0.0867
[AD-2, AD+3] Mean -2.86%* -1.05%
t-value (-1.85) (-1.56)
Sign test p-val. 0.0225 0.0328
Sign rank p-val. 0.0327 0.0273
[AD-2, AD+5] Mean -3.50%* -0.10%
t-value (-2.12) (-1.17)
Sign test p-val. 0.0923 0.1189
Sign rank p-val. 0.0398 0.1453
[AD-2, AD+10] Mean -6.04%** -2.83%**
t-value (-2.50) (-2.31)
Sign test p-val. 0.2668 0.2026
Sign rank p-val. 0.0215 0.0302
[AD-2, AD+15] Mean -8.82%** -1.91%
t-value (-2.50) (-1.12)
Sign test p-val. 0.2668 0.8877
Sign rank p-val. 0.0327 0.4427
N 13 50
36
Table 7
CDS cumulative abnormal spread changes by credit ratings
This table reports the addition firms’ market adjusted cumulative abnormal changes of CDS
spreads by credit ratings in both short- and long-term in panel A and B, respectively. Among the 63
addition firms, there are 42 investment grade firms (AAA, AA, A and BBB) and 21 speculative
grade firms (BB, B and CCC). T-values are reported in the parenthesis. The third and fourth rows
of each block report the p values from the Wilcoxon sign test and Wilcoxon sign rank test,
respectively. *, ** and *** represent the statistical significance at 10%, 5% and 1% levels,
respectively.
Panel A: Short-term results
Windows Statistics Investment grade Speculative grade
[AD-2, AD+1] Mean -0.90 -1.36%*
t-value (-1.28) (-2.00)
Sign test p-val. 0.0884 0.0266
Sign rank p-val. 0.0607 0.0558
[AD-2, AD+2] Mean -1.11% -1.60%**
t-value (-1.35) (-2.30)
Sign test p-val. 0.0884 0.0266
Sign rank p-val. 0.0644 0.0466
[AD-2, AD+3] Mean -1.05% -2.17%***
t-value (-1.19) (-3.45)
Sign test p-val. 0.0884 0.0072
Sign rank p-val. 0.0765 0.0013
[AD-2, AD+5] Mean -0.96% -2.62%**
t-value (-0.97) (-2.30)
Sign test p-val. 0.0884 0.1892
Sign rank p-val. 0.1738 0.0317
[AD-2, AD+10] Mean -2.73%** -5.03%**
t-value (-2.43) (-2.09)
Sign test p-val. 0.1641 0.3833
Sign rank p-val. 0.0282 0.0466
[AD-2, AD+15] Mean -1.67% -6.66%**
t-value (-0.94) (-2.23)
Sign test p-val. 0.8776 1.0000
Sign rank p-val. 0.3982 0.0785
N 42 21
37
Table 7 (continued)
Panel B: Long-term results
Windows Statistics Investment grade Speculative grade
[AD-2, AD+252] Mean -0.1721* -0.3302***
t-value (-1.91) (-3.54)
Sign test p-val. 0.6440 0.0784
Sign rank p-val. 0.0663 0.0016
[AD-2, AD+504] Mean -0.4597*** -0.3529**
t-value (-3.52) (-2.27)
Sign test p-val. 0.0029 0.0784
Sign rank p-val. 0.0009 0.0386
[AD-2, AD+756] Mean -0.6185** -0.2085
t-value (-4.11) (-0.70)
Sign test p-val. 0.0079 0.3833
Sign rank p-val. 0.0002 0.2538
N
42 21
38
Table 8
Multivariate regression results
This table reports the multivariate regression results with the recent financial crisis dummy and
credit rating dummy. Our sample period is from January 2001 to December 2012. The dependent
variable is the CDS cumulative abnormal spread changes in the event window [AD-2, AD+15].
Size the market capitalization. Equity volatility is the annualized standard deviation calculated
based on daily returns. Leverage is equal to the ratio of book debt value to the sum of book debt
value and market capitalization. Return on assets (ROA) is defined as net income divided by total
assets. Market-to-book ratio is defined as the ratio of market value to book value of equity. The
Crisis dummy is equal to 1 when the event happened in the crisis defined as the period from 2008
to 2009. The InvestGrade dummy is equal to 1 if the firm has investment grade rating and zero
otherwise. The Crisis dummy is equal to 1 if the event occurred during 2008-2009 and zero
otherwise. Liquidity refers to stock market liquidity, following the measure in Amihud (2002).
*, ** and *** represent the statistical significance at 10%, 5% and 1% levels, respectively.
(1)
[AD-2, AD+15]
(2)
[AD-2, AD+15]
Intercept -0.0807 -0.0626
(-1.28) (-1.11)
Leverage 0.0855 0.0901
(0.76) (0.83)
Size -0.0042 -0.0055
(-0.25) (-0.35)
ROA -0.3507 -0.3599
(-0.59) (-0.61)
Market-to-book ratio 0.0013 0.0011
(0.11) (0.10)
InvestGrade 0.0691* 0.0670**
(1.96) (2.02)
Crisis -0.1035** -0.0997**
(-2.24) (-2.36)
Liquidity 26.6813
(0.21)
N 63 63
Adjusted R2 2.13% 3.83%