Measuring Abnormal Bond Performance
53 Pages Posted: 19 Jan 2005 Last revised: 17 Jul 2008
There are 2 versions of this paper
Measuring Abnormal Bond Performance
Measuring Abnormal Bond Performance
Abstract
We analyze the empirical power and specification of test statistics designed to detect abnormal bond returns in corporate event studies, using monthly and daily data. We find that test statistics based on frequently used methods of calculating abnormal monthly bond returns are biased. Most methods implemented in monthly data also lack power to detect abnormal returns. We also consider unique issues arising when using the newly available TRACE data, and formulate and test methods to calculate daily abnormal bond returns. Using daily bond data significantly increases the power of the tests, relative to the monthly data. Weighting individual trades by size while eliminating non-institutional trades from the TRACE data also increases the power of the tests to detect abnormal performance, relative to using all trades or the last price of the day. Further, value-weighted portfolio matching approaches are better specified and more powerful than equal-weighted approaches. Finally, we examine abnormal bond returns to acquirers around mergers and acquisitions to demonstrate how the abnormal return model and use of daily versus monthly data can affect inferences.
Keywords: event study, bond returns, TRACE
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Corporate Bond Market Transparency and Transaction Costs
By Amy K. Edwards, Lawrence Harris, ...
-
The Informational Efficiency of the Corporate Bond Market: An Intraday Analysis
By Tavy Ronen and Edith S. Hotchkiss
-
Transparency and Liquidity: A Controlled Experiment on Corporate Bonds
By Edith S. Hotchkiss, Michael A. Goldstein, ...
-
Financial Intermediation and the Costs of Trading in an Opaque Market
By Richard C. Green, Burton Hollifield, ...
-
Market Transparency, Liquidity Externalities, and Institutional Trading Costs in Corporate Bonds
By Hendrik Bessembinder, William F. Maxwell, ...
-
By Sugato Chakravarty and Asani Sarkar
-
Determinants of Corporate Bond Trading: A Comprehensive Analysis
-
Trading Activity and Price Volatility in the Municipal Bond Market
-
Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues
By Richard C. Green, Burton Hollifield, ...
-
Regulatory Pressure and Fire Sales in the Corporate Bond Market
By Andrew Ellul, Chotibhak Jotikasthira, ...