The Informational Efficiency of the Corporate Bond Market: An Intraday Analysis

42 Pages Posted: 3 Jan 2000  

Tavy Ronen

Rutgers University, Newark - School of Business - Department of Finance & Economics

Edith S. Hotchkiss

Boston College - Carroll School of Management

Date Written: November 15, 1999

Abstract

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

Ronen, Tavy and Hotchkiss, Edith S., The Informational Efficiency of the Corporate Bond Market: An Intraday Analysis (November 15, 1999). Available at SSRN: https://ssrn.com/abstract=195248 or http://dx.doi.org/10.2139/ssrn.195248

Tavy Ronen

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States
973-353-5272 (Phone)
973-353-1345 (Fax)

Edith S. Hotchkiss (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

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