What Does the Corporate Bond Market Know?

19 Pages Posted: 18 Jan 2014

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: February 2014

Abstract

Do related markets reflect new information simultaneously? For high‐yield bonds, a large abnormal price decline in a corporation's most liquid bond over a month is followed by an average abnormal stock price decline of −1.42%. This effect is larger for stocks that have increased in value and for volatile stocks. It is also larger for bonds with high coupons and shorter maturities. These results support the view that high‐yield corporate bonds have an informational edge when news is negative and stock returns are noisy, and add to the growing literature on the substantial lags in price discovery between related markets.

Keywords: corporate bonds, informational efficiency, market liquidity

JEL Classification: G12, G14

Suggested Citation

Bittlingmayer, George and Moser, Shane, What Does the Corporate Bond Market Know? (February 2014). Financial Review, Vol. 49, Issue 1, pp. 1-19, 2014, Available at SSRN: https://ssrn.com/abstract=2380999 or http://dx.doi.org/10.1111/fire.12023

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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