Disagreement, Liquidity, and Price Drifts in the Corporate Bond Market

87 Pages Posted: 7 Feb 2022 Last revised: 1 Aug 2022

See all articles by Yoshio Nozawa

Yoshio Nozawa

University of Toronto

Yancheng Qiu

Hong Kong University of Science & Technology (HKUST)

Yan Xiong

The Hong Kong University of Science and Technology

Date Written: August 1, 2022

Abstract

This paper documents empirical evidence for post-earnings announcement drift (PEAD) in corporate bond prices using transaction data. We find that PEAD is more pronounced for bonds that trade more frequently than those that trade infrequently and also manifests in the credit default swap (CDS) market, rejecting the idea that infrequent transactions generate drifts in pricing. We explain this puzzling positive link between PEAD and transaction volume using a stylized model in which investors agree to disagree on their valuation of bonds. Empirical evidence supports the hypothesis that disagreement explains both observed price drifts and increased trading volumes.

Keywords: Disagreement, Liquidity, Informational Efficiency, Corporate Bonds, Post Earnings Announcement Drift

JEL Classification: G12, G13

Suggested Citation

Nozawa, Yoshio and Qiu, Yancheng and Xiong, Yan, Disagreement, Liquidity, and Price Drifts in the Corporate Bond Market (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=3990000 or http://dx.doi.org/10.2139/ssrn.3990000

Yoshio Nozawa (Contact Author)

University of Toronto ( email )

105 St George St
Toronto, ON M5S3E6
Canada
3013125569 (Phone)

Yancheng Qiu

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Yan Xiong

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
228
Abstract Views
692
rank
191,912
PlumX Metrics