What Does the Corporate Bond Market Know?

41 Pages Posted: 11 Aug 2012

See all articles by George Bittlingmayer

George Bittlingmayer

University of Kansas - Finance Area

Shane Moser

University of Mississippi

Multiple version iconThere are 2 versions of this paper

Date Written: August 10, 2012

Abstract

Do smaller, less liquid markets help predict prices in more liquid related markets? Using TRACE bond trade data for 1,958 bonds issued by 663 firms, we find that a decline of 10% in a firm’s bonds over one month is associated with a decline of 2.1% in its stock the following month. The coefficient is larger for firms with volatile stock, for more liquid and high-yield bonds, for zero-coupon bonds, and for bond price declines. These results support the view that informed trading may take place first in the less liquid market and that new information is often transmitted across related markets with a substantial lag.

Keywords: capital markets, market efficiency, bonds

JEL Classification: G12, G14

Suggested Citation

Bittlingmayer, George and Moser, Shane, What Does the Corporate Bond Market Know? (August 10, 2012). Available at SSRN: https://ssrn.com/abstract=2127831 or http://dx.doi.org/10.2139/ssrn.2127831

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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