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“Sell the News!” Liquidity Provision by Bond Funds Following Corporate News Events
Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023
SMU Cox School of Business Research Paper No. 22-06
65 Pages Posted: 14 Feb 2022 Last revised: 5 Apr 2025
Date Written: September 19, 2022
Abstract
Using a comprehensive database of corporate news, we find that corporate bond mutual funds surprisingly tend to trade against the direction of the news tone (“sentiment”) in its wake. This “trading against news
sentiment” behavior is concentrated in funds selling on positive sentiment news, and in the post-financial crisis period when dealer liquidity provision becomes much more constrained. Funds that systematically
sell against the news exhibit higher alphas, in part due to post-news bond price reversals. Our findings highlight that bond mutual funds have become an important source of liquidity in corporate bond markets
for news-sensitive traders.
Suggested Citation: Suggested Citation
Huang, Alan G. and Wermers, Russell R. and Xue, Jinming,
“Sell the News!” Liquidity Provision by Bond Funds Following Corporate News Events
(September 19, 2022). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, SMU Cox School of Business Research Paper No. 22-06, Available at SSRN: https://ssrn.com/abstract=3980151 or http://dx.doi.org/10.2139/ssrn.3980151
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
Jinming Xue (Contact Author)
Southern Methodist University (SMU) - Finance Department ( email )
United States
(214)-768-4181 (Phone)
HOME PAGE: http://sites.google.com/view/jinming-xue
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