Initial Evidence on the Role of Accounting Earnings in the Bond Market
Peter D. Easton
University of Notre Dame - Department of Accountancy
Steven J. Monahan
Florin P. Vasvari
London Business School
We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements; (2) there is a bond-price reaction to the announcement of earnings; and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market.
Number of Pages in PDF File: 60
JEL Classification: G12, M41, G29, G32working papers series
Date posted: April 27, 2009
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