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Initial Evidence on the Role of Accounting Earnings in the Bond MarketPeter D. EastonUniversity of Notre Dame - Department of Accountancy Steven J. MonahanINSEAD Florin P. VasvariLondon Business School December 1, 2008 Abstract: 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: 63 Keywords: Bond Returns, Bond Trade, Earnings, Losses and Call Option JEL Classification: G12, G32, M41, G34 working papers seriesDate posted: July 7, 2007 ; Last revised: January 26, 2009Suggested CitationContact Information
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