Short Selling, Trading Activity and Volatility in Corporate Bond Market

52 Pages Posted: 18 Aug 2018

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Petko S. Kalev

La Trobe Business School

Xiao Tian

La Trobe University

Date Written: August 18, 2018

Abstract

We investigate the impact of short selling activity on trading activity and price volatility in the U.S corporate bond market. Consistent with prior literature, we find that investors use short selling as a platform to express their difference of opinions. In addition, we find that the positive relation between short selling activity and price volatility becomes weaker during period when investors’ expectations tend to be more homogenous such as the Global Financial Crisis (GFC). More importantly, we show that short selling in the corporate bond market is not simply a substitute to equity short selling and option trading for investors to trade negative news and information against the underlying company. On the contrary, it is an independent conduit for investors to express difference of opinions specific to bond.

Keywords: Short Selling; Corporate Bond Market; Difference of Opinion; Volatility

Suggested Citation

Duong, Huu Nhan and Kalev, Petko S. and Tian, Xiao, Short Selling, Trading Activity and Volatility in Corporate Bond Market (August 18, 2018). 31st Australasian Finance and Banking Conference 2018. Available at SSRN: https://ssrn.com/abstract=3234262 or http://dx.doi.org/10.2139/ssrn.3234262

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Xiao Tian (Contact Author)

La Trobe University ( email )

Plenty Road & Kingsbury Drive
Melbourne, 3086
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
71
Abstract Views
495
rank
352,293
PlumX Metrics