Sell-Side Debt Analysts and Debt Market Efficiency

Forthcoming in Management Science

48 Pages Posted: 22 Jun 2008 Last revised: 25 Aug 2015

See all articles by Umit G. Gurun

Umit G. Gurun

University of Texas at Dallas

Rick Johnston


Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: May 1, 2015


We explore sell-side debt analysts’ contributions to the efficiency of securities markets. We document that debt returns lag equity returns less when debt research coverage exists, consistent with debt analysts facilitating the process by which available information is impounded in debt prices. The effect is incremental to, but comparable in magnitude to, hedge fund ownership’s effect. No such effect exists for credit rating agencies. We also find that the dissemination of debt reports has an immediate effect on return volatility in both markets, consistent with debt analysts providing new information to securities markets. Increased return covariation suggests that this information impacts the pricing of debt and equity in the same direction. A large percentage of debt reports do not induce any immediate debt market return reaction but do induce an equity return reaction, consistent with new information being provided despite the absence of a debt market reaction. Finally, there is systematic variation in the debt market’s trading and return reactions to debt research. Timely reports and those by high-reputation brokers induce a quicker trading response, thus enhancing liquidity, while only timely reports induce a greater return response. This study illuminates the institutional underpinnings of debt market efficiency, and it has important implications for information content tests in the debt market, where trading is limited.

Keywords: Financial analysts, Information, Equity markets, Debt markets, Market efficiency

JEL Classification: D53, G12, G14, G21, G24

Suggested Citation

Gurun, Umit G. and Johnston, Rick M. and Markov, Stanimir, Sell-Side Debt Analysts and Debt Market Efficiency (May 1, 2015). Forthcoming in Management Science, Available at SSRN: or

Umit G. Gurun (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States


Rick M. Johnston

Independent ( email )

Stanimir Markov

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972 883 5166 (Phone)

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