Price Discovery in the Stock and Corporate Bond Markets

36 Pages Posted: 8 Oct 2012 Last revised: 13 May 2014

See all articles by Yifei Mao

Yifei Mao

Cornell University - SC Johnson College of Business - Finance Department

Date Written: November 24, 2012

Abstract

This paper uses intraday U.S. bond transaction and stock quote data to investigate whether corporate bonds lead stocks in price discovery of underlying firm value. I use Hasbrouck's (1995) "information share" approach to determine the relative contribution of corporate bonds to price discovery. Based on a sample of 214 firms, I find that corporate bond markets contribute 12.6% on average to price discovery from 2009 to 2011. Corporate bond market price discovery increases with the riskiness of the underlying firm value, and is related to contemporaneous market conditions. The findings are consistent with the informed trading theory and Merton (1973) model.

Keywords: Price Discovery, Information Share, Corporate Bond

Suggested Citation

Mao, Yifei, Price Discovery in the Stock and Corporate Bond Markets (November 24, 2012). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2140186 or http://dx.doi.org/10.2139/ssrn.2140186

Yifei Mao (Contact Author)

Cornell University - SC Johnson College of Business - Finance Department ( email )

Ithaca, NY 14850
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
203
Abstract Views
1,844
Rank
239,067
PlumX Metrics