Life (of a Bond) is Short: Managerial Learning from Bond Prices

67 Pages Posted: 15 Apr 2024 Last revised: 1 May 2024

See all articles by Sudarshan Jayaraman

Sudarshan Jayaraman

University of Rochester - Simon Business School; Simon Business School, University of Rochester

Vivek Pandey

University of Rochester - Simon Business School

Joanna S. Wu

University of Rochester - Simon Business School

Date Written: March 28, 2024

Abstract

Theory highlights stock prices as less suitable for market feedback during bad times because they impound both short-term degradation in cash flows and possible long-term improvement given manager’s corrective actions. Shorter-maturity bonds suffer less from this anticipated corrective actions problem and can play a unique feedback role during bad times. Consistent with this, we document managerial learning from bond prices, that is greater for shorter-maturity bonds (despite longer-duration bonds being more information-sensitive), when bond prices decline, and during periods of higher informed trading. We strengthen causal interpretation using introduction of TRACE as a shock to market feedback from bond prices.

Keywords: Managerial learning, Real effects, Investments, Corporate bond markets

JEL Classification: D83, G10, G14, G30, G31, M41

Suggested Citation

Jayaraman, Sudarshan and Jayaraman, Sudarshan and Pandey, Vivek and Wu, Joanna Shuang, Life (of a Bond) is Short: Managerial Learning from Bond Prices (March 28, 2024). Available at SSRN: https://ssrn.com/abstract=4775699 or http://dx.doi.org/10.2139/ssrn.4775699

Sudarshan Jayaraman

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3491 (Phone)

Vivek Pandey (Contact Author)

University of Rochester - Simon Business School ( email )

Joanna Shuang Wu

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160D
Rochester, NY 14627
United States
585-275-5468 (Phone)
585-442-6323 (Fax)

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