A Note on Credit Derivatives and M&A Transactions: Announcement and Anticipation Effects

This paper analyses CDS and equity markets dynamics of acquiring companies, to explore whether those parties that are involved in M&A transactions are using their access to privileged bank information for private benefits. We find different effects on the CDS and equity markets, primarily because the range of participants on these markets and their regulatory frameworks differ. Our results suggest a stronger anticipation effect and therefore more trading on private information on the CDS market. We posit that this is attributable to its characteristics as an OTC market, and the lack of transparency. Moreover, the results of our multivariate analysis are consistent with the view that certain M&A transactions are especially vulnerable to information leakage in CDS markets.