Abstract

http://ssrn.com/abstract=2023494
 


 



Informed Trading in Corporate Bonds Prior to Earnings Announcements


Jason Zhanshun Wei


University of Toronto - Rotman School of Management

Xing Zhou


Rutgers, The State University of New Jersey - Department of Finance

January 31, 2012


Abstract:     
This paper examines the information contents of trading activities in the corporate bond market prior to earnings announcements. We find that the direction of pre-announcement bond trading is significantly related to earnings surprises. Such linkage is most evident prior to negative news and in high-yield bonds. Further, abnormal bond trading during the pre-announcement period can help predict post-announcement bond returns. Such predictive power of bond trading largely originates from institutional sized trades, and it is concentrated in the issuer’s most actively traded bond. Lastly, even after accounting for transactions costs, informed bond trading can generate significant net profits, especially prior to the release of bad news.

Number of Pages in PDF File: 49

Keywords: Informed trading, trade imbalance, corporate bond market, earnings surprises

JEL Classification: G14

working papers series


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Date posted: March 16, 2012  

Suggested Citation

Wei, Jason Zhanshun and Zhou, Xing, Informed Trading in Corporate Bonds Prior to Earnings Announcements (January 31, 2012). Available at SSRN: http://ssrn.com/abstract=2023494 or http://dx.doi.org/10.2139/ssrn.2023494

Contact Information

Jason Zhanshun Wei (Contact Author)
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-3698 (Phone)
416-971-3048 (Fax)
Xing Zhou
Rutgers, The State University of New Jersey - Department of Finance ( email )
94 Rockafeller Road
Piscataway, NJ 08854
United States
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