Where Did All the Information Go? Trade in the Corporate Bond Market

44 Pages Posted: 23 Jan 2014 Last revised: 28 May 2016

See all articles by Tavy Ronen

Tavy Ronen

Rutgers Business School -Newark and New Brunswick, Department of Finance & Economics

Xing (Alex) Zhou

Board of Governors of the Federal Reserve System

Date Written: November 1, 2008

Abstract

This paper examines shifting liquidity in the corporate bond market and illustrates how cross market comparisons can lead to misleading inferences regarding market efficiency when liquidity and trading patterns are ignored. For example, when institutional trade dominance and other bond trading features are accounted for, stock leads evidenced in earlier studies are surprisingly reversed. Moreover, bond prices often fully adjust to news before equity market open. Informational advantages are most pronounced during low equity market liquidity and price discovery periods. Finally, dynamic liquidity patterns give rise to ‘top bonds’, which are those attracting most institutional sized trades after news and are shown to play an important role in the price discovery process. These bonds shift identity over time but exhibit common ex-ante identifiable characteristics.

Keywords: Fixed Income, Credit Markets, Corporate Bond Prices, Informational Efficiency, Bond Market Liquidity, Institutional/Retail Investors

JEL Classification: G100

Suggested Citation

Ronen, Tavy and Zhou, Xing (Alex), Where Did All the Information Go? Trade in the Corporate Bond Market (November 1, 2008). Second Singapore International Conference on Finance 2008; EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1085638 or http://dx.doi.org/10.2139/ssrn.1085638

Tavy Ronen (Contact Author)

Rutgers Business School -Newark and New Brunswick, Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-5272 (Phone)

HOME PAGE: http://https://www.business.rutgers.edu/faculty/tavy-ronen

Xing (Alex) Zhou

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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