The Informational Role of Stock and Bond Volume

71 Pages Posted: 21 Feb 2013 Last revised: 19 Mar 2014

See all articles by Kerry Back

Kerry Back

Rice University - Jesse H. Jones Graduate School of Business

Kevin Crotty

Rice University

Date Written: February 24, 2014

Abstract

In a Kyle (1985) model, the sign of the correlation between a firm's debt and equity returns is the same as the sign of the cross-market Kyle's lambda. The sign is positive (negative) if private information concerns the mean (risk) of the firm's assets. We show empirically that information conveyed by order flows is primarily about asset means. The cross-market lambdas are quite large; consequently, the portions of bond and stock returns explained by order flows are highly correlated, even though the order flows themselves are virtually uncorrelated.

Keywords: Informed trading, price impact, liquidity

JEL Classification: G10, G12, G14

Suggested Citation

Back, Kerry and Crotty, Kevin, The Informational Role of Stock and Bond Volume (February 24, 2014). Available at SSRN: https://ssrn.com/abstract=2220835 or http://dx.doi.org/10.2139/ssrn.2220835

Kerry Back

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Kevin Crotty (Contact Author)

Rice University ( email )

6100 Main Street
Houston, TX 77005-1892
United States

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