Download This PaperShort Selling, Divergence of Opinion and Volatility in the Corporate Bond Market
42 Pages Posted: 18 Aug 2018 Last revised: 21 Feb 2023
Date Written: May 1, 2021
Abstract
We investigate the impact of short selling activity on price volatility in the corporate bond market. We find that bond short selling activity is positively related to volatility, trading activity, and the volume-volatility relation. During the Global Financial Crisis, when investors’ expectations tend to be more homogenous, the positive relation between short selling activity and price volatility breaks down. We further show that bond short selling is not a substitute for equity short selling and put option trading. Overall, our study highlights the importance of bond short selling as a platform to express investors’ differences of opinion.
Keywords: Short Selling; Corporate Bond Market; Difference of Opinion; Volatility
JEL Classification: G12; G14
Suggested Citation: Suggested Citation
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