Wag the Dog Phenomenon

Often occurs when thin trading volume persists.

Wag the Dog means that a dog's tail shakes its body, and is usually used to refer to a phenomenon in the stock market where the futures market (the tail) has a significant influence on the spot market (the body). One of the derivatives commonly cited as causing the Wag the Dog phenomenon is the credit default swap (CDS).

As the CDS premium, which represents the price of CSD, is recognized as a representative indicator of the default probability of the underlying bond, it is often pointed out that sharp rises or falls in the CDS premium move bond yields.

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Topics: Option
Category: Wiki/Economy