Abstract

http://ssrn.com/abstract=1148898
 
 

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Sell-Side Debt Analysts and Market Efficiency


Umit G. Gurun


University of Texas at Dallas - Naveen Jindal School of Management

Rick Johnston


Rice University - Jesse H. Jones Graduate School of Business

Stanimir Markov


Southern Methodist University (SMU) - Edwin L. Cox School of Business

May 30, 2013


Abstract:     
We explore sell-side debt analysts’ contributions to the efficiency of securities markets. We document that in the presence of debt research, debt returns lag equity returns significantly less, consistent with debt analysts ensuring that available information is impounded in debt prices. We also find that the dissemination of debt reports has an immediate effect on return volatility in both markets, consistent with debt analysts increasing the amount of information available to securities markets. A large percentage of debt reports do not induce any immediate debt market reaction but do induce an equity return reaction, consistent with new information being provided to securities markets even in the absence of a debt market reaction. Finally, there is systematic variation in the debt market’s trading and return reactions to debt research. Reports by high-reputation brokers induce a quicker trading response, while timely reports induce a greater return volatility effect. This study illuminates the institutional underpinnings of debt market efficiency, and has important implications for information content tests in the debt market where trading is limited.

Number of Pages in PDF File: 39

Keywords: Financial analysts, Information, Equity markets, Debt markets, Market Efficiency

JEL Classification: D53, G12, G14, G21, G24

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Date posted: June 22, 2008 ; Last revised: October 16, 2013

Suggested Citation

Gurun, Umit G. and Johnston, Rick and Markov, Stanimir, Sell-Side Debt Analysts and Market Efficiency (May 30, 2013). Available at SSRN: http://ssrn.com/abstract=1148898 or http://dx.doi.org/10.2139/ssrn.1148898

Contact Information

Umit G. Gurun (Contact Author)
University of Texas at Dallas - Naveen Jindal School of Management ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
Rick M. Johnston
Rice University - Jesse H. Jones Graduate School of Business ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
Stanimir Markov
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
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