When Does the Bond Price Reaction to Earnings Announcements Predict Future Stock Returns?

30 Pages Posted: 18 Jun 2020

See all articles by Omri Even-Tov

Omri Even-Tov

Haas School of Business - UC Berkeley

Date Written: May 27, 2017

Abstract

In this paper I show that the bond price reaction to earnings announcements has predic- tive power for post-announcement stock returns and that this predictive ability is driven by the bonds of non-investment grade firms. I find that bonds’ predictive ability is more pronounced in firms that have a lower level of institutional shareholder ownership and whose bonds are more liquid. This paper enhances our understanding of the relation between the stock and bond markets and complements the literature which documents whether, and under what circumstances, various accounting-based measures and financial statement components predict post-announcement stock returns.

Keywords: Post-announcement stock returns, Earnings announcements, Bond prices, Anomalies, Sophisticated investors

Suggested Citation

Even-Tov, Omri, When Does the Bond Price Reaction to Earnings Announcements Predict Future Stock Returns? (May 27, 2017). Journal of Accounting & Economics (JAE), Vol. 64, No. 1, 2017, Available at SSRN: https://ssrn.com/abstract=3494070

Omri Even-Tov (Contact Author)

Haas School of Business - UC Berkeley ( email )

Haas School of Business
Berkeley, CA 94720
United States
3104302236 (Phone)

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