The Informational Efficiency of the Corporate Bond Market: An Intraday Analysis
42 Pages Posted: 3 Jan 2000
Date Written: November 15, 1999
Using a unique dataset including daily and hourly high yield bond transactions prices, we examine the informational efficiency of the corporate bond market relative to the market for the underlying stock. In contrast to previous research utilizing weekly or monthly dealer quotes, we find that stocks do not lead bonds in reflecting firm specific information. We further consider the impact of firm specific information on corporate bond prices by examining price behavior around earnings releases and find that this information is quickly incorporated into both bond and stock prices, even at short return horizons. Finally, we find that measures of market quality are no poorer for the bonds in our sample than for the underlying stocks. Our results suggest that the relative informativeness of high yield bond prices is driven largely by the bonds' liquidity rather than the structure of the dealer market for corporate bonds.
JEL Classification: G10, G14
Suggested Citation: Suggested Citation