Corporate Bond Prices and Idiosyncratic Risk: Evidence from Australia

39 Pages Posted: 18 Feb 2009 Last revised: 20 Jul 2014

See all articles by Victor Fang

Victor Fang

Monash University - Department of Accounting

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School

Date Written: June 2, 2014

Abstract

In this paper we investigate the bond price effect upon the information arrival of firm-specific idiosyncratic risk. We consider idiosyncratic dispersion and idiosyncratic volatility that capture, respectively, the direction of information and the magnitude of idiosyncratic risk. We find that idiosyncratic volatility does not affect bond prices, while the direction of idiosyncratic risk which reflects the favorable or unfavorable information exhibits impacts on bond prices. Idiosyncratic dispersion in the stock return of a firm in the preceding week, in general, is positively associated with bond price changes in the current week. This effect is most pronounced for firms exhibiting characteristics associated with lower default risk.

Keywords: Idiosyncratic Risk; Idiosyncratic Dispersion; Idiosyncratic Volatility; Corporate Bond Price; Australian Bond Markets

JEL Classification: G10, G12, G14

Suggested Citation

Fang, Victor and Hung, Chi-Hsiou Daniel, Corporate Bond Prices and Idiosyncratic Risk: Evidence from Australia (June 2, 2014). Available at SSRN: https://ssrn.com/abstract=1342166 or http://dx.doi.org/10.2139/ssrn.1342166

Victor Fang (Contact Author)

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University of Glasgow
Glasgow, Scotland G12 8QQ
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
79
Abstract Views
745
rank
338,129
PlumX Metrics