Information in CDS spreads

We investigate how public and private information affects corporate CDS spreads prior to rating announcements. First, CDS spreads of firms with high news intensity change significantly earlier and more strongly prior to negative rating announcements than those of firms with low news intensity. Second, the contents of daily corporate news significantly influence the direction in which the CDS spreads move. Third, CDS spreads change more strongly for firms with more bank relationships and days with no news but large abnormal CDS spread changes are more frequent prior to negative rating announcements than prior to positive ones. The study provides new evidence on the informational efficiency of the CDS market, the impact of credit rating announcements, and insider trading.