Corporate Bond Price Reversals

Posted: 31 Oct 2019 Last revised: 18 Oct 2023

Date Written: October 17, 2023


I demonstrate empirically that corporate bond dealers mitigate adverse selection risk by passing potentially informed transactions to institutional investors, who then act as liquidity providers to informed traders. I obtain these results by contrasting price reversals following days with abnormal trading volume across bonds with varying levels of information asymmetry. When traders are informed, the part of the price reversal that arises after high-volume days should increase with bond information asymmetry. By contrast, there should be no such effect when traders are uninformed. Following high-volume days when investors provide liquidity, the reversal patterns are consistent with the former case. When dealers trade from their inventory, I observe the latter. The results suggest that the informational content of bond prices is higher on high-volume days when dealers reduce overnight inventory risk.

Keywords: corporate bonds, trading volume, reversal, informed trading, dealer inventory

JEL Classification: G12, G14

Suggested Citation

Ivashchenko, Alexey, Corporate Bond Price Reversals (October 17, 2023). Available at SSRN: or

Alexey Ivashchenko (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV


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