Sell-Side Debt Analysts and Market Efficiency
Umit G. Gurun
University of Texas at Dallas - Naveen Jindal School of Management
Rice University - Jesse H. Jones Graduate School of Business
Southern Methodist University (SMU) - Edwin L. Cox School of Business
May 30, 2013
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, G24working papers series
Date posted: June 22, 2008 ; Last revised: October 16, 2013
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