What Does the Bond Market Know?

45 Pages Posted: 24 Feb 2011

See all articles by George Bittlingmayer

George Bittlingmayer

University of Kansas - Finance Area

Shane Moser

University of Mississippi

Date Written: February 21, 2011

Abstract

Do smaller, less liquid markets help predict prices in more liquid related markets? Using TRACE data for 2002-08 for 1,167 bonds issued by 442 firms, we find that a decline of 10% over three months of a firm’s bonds is associated with an ensuing decline of 3% to 6% in its stock. Bond price increases do not have a similar effect. Possible explanations for the lead of bond prices over stocks include the focus of bond analysts on negative news, the use of credit-default swaps as venues for informed trading, and the incomplete adjustment of stock prices to new information.

Suggested Citation

Bittlingmayer, George and Moser, Shane, What Does the Bond Market Know? (February 21, 2011). Available at SSRN: https://ssrn.com/abstract=1767441 or http://dx.doi.org/10.2139/ssrn.1767441

George Bittlingmayer (Contact Author)

University of Kansas - Finance Area ( email )

Lawrence, KS 66045
United States

Shane Moser

University of Mississippi ( email )

Oxford, MS 38677
United States

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