The Sensitivity of the Credit Default Swap Market to Financial Analysts’ Forecast Revisions

29 Pages Posted: 17 Sep 2018

See all articles by Pervaiz Alam

Pervaiz Alam

Kent State University

Xiaoling Pu

Kent State University - Department of Finance

Barry Hettler

SUNY College at Brockport

Date Written: September 2018

Abstract

We examine the impact of analysts’ earnings per share (EPS) and cash flow per share (CPS) forecast revisions on the market for credit default swaps. We find that while the issuance of both EPS and CPS forecast revisions are inversely associated with changes in credit default swap (CDS) spreads, cash flow forecast revisions have a larger effect. We demonstrate that the relationship between CPS forecast revisions and CDS spreads tends to be stronger in cases of financial distress. We provide evidence that cash flow forecasts dominate earnings forecasts in some situations and that participants in the CDS market discriminate between analysts' forecast revisions and recommendation changes.

Keywords: Forecast revisions, Earnings per share, Cash flow per share, Credit default swaps

Suggested Citation

Alam, Pervaiz and Pu, Xiaoling and Hettler, Barry, The Sensitivity of the Credit Default Swap Market to Financial Analysts’ Forecast Revisions (September 2018). Accounting & Finance, Vol. 58, Issue 3, pp. 697-725, 2018, Available at SSRN: https://ssrn.com/abstract=3244677 or http://dx.doi.org/10.1111/acfi.12235

Pervaiz Alam (Contact Author)

Kent State University ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1121 (Phone)
330-672-2548 (Fax)

Xiaoling Pu

Kent State University - Department of Finance ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States

Barry Hettler

SUNY College at Brockport

Brockport, NY 14420
United States

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