Sell-Side Debt Analysts and Market Efficiency

Abstract:     
We explore whether sell-side debt analysts speed up the debt market’s process of incorporating publicly available information, and whether they also provide new information. We document that in the presence of debt research the debt returns lag the equity returns less, and both debt and equity returns react jointly to the distribution of debt research reports. While 37% of the reports occur on days without debt market trading, the equity reaction on these days is lower relative to reports with debt trading but still significant, alleviating the concern that these reports are uninformative. We conclude that sell-side debt analysts enhance the efficiency of public debt markets, filling a gap left by credit rating agencies’ shift away from providing timely information to investors and toward selling regulatory licenses.

Number of Pages in PDF File: 41

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

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

working papers series