Return Predictability in Corporate Bond Market Along the Supply Chain

52 Pages Posted: 21 Apr 2014 Last revised: 4 Jan 2017

See all articles by Long Chen

Long Chen

Luohan Academy; Cheung Kong Graduate School of Business

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration

Weina Zhang

Department of Finance, National University of Singapore; National University of Singapore Risk Management Institute

Date Written: November 4, 2015

Abstract

We explore how efficiently new information transmits along the supply chain in corporate bond market. We find a strong predictability of the lagged bond returns of customers for related firm- and industry-level future bond returns. This is likely due to investors’ inattention to cash-flow related news along the supply chain. Moreover, the lagged bond returns of suppliers only predict the future bond returns of those firms that have less bargaining power. Overall, our results suggest that information along the supply chain travels more gradually in the bond market than the stock market.

Keywords: Corporate Bonds; Cash Flow; Credit Rating; Credit Risk; Earnings; Information; Supply Chain; Return Predictability

JEL Classification: G12, G14

Suggested Citation

Chen, Long and Zhang, Gaiyan and Zhang, Weina, Return Predictability in Corporate Bond Market Along the Supply Chain (November 4, 2015). Journal of Financial Markets, June 2016, Vol 29, 66-86, Available at SSRN: https://ssrn.com/abstract=2427136 or http://dx.doi.org/10.2139/ssrn.2427136

Long Chen

Luohan Academy ( email )

No. 556, Xixi Road, Z Space
Xihu District
Hangzhou, Zhejiang 310013
China
+86-0571-2688-8888-75520 (Phone)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Gaiyan Zhang

University of Missouri at St. Louis - College of Business Administration ( email )

One University Blvd
St. Louis, MO 63121
United States

Weina Zhang (Contact Author)

Department of Finance, National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
65168120 (Phone)
67792083 (Fax)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/108-weina

National University of Singapore Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

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