Measuring Abnormal Bond Performance

53 Pages Posted: 19 Jan 2005 Last revised: 17 Jul 2008

See all articles by Hendrik Bessembinder

Hendrik Bessembinder

W.P. Carey School of Business

Kathleen M. Kahle

University of Arizona - Department of Finance; European Corporate Governance Institute (ECGI)

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Danielle Xu

Gonzaga University

Multiple version iconThere are 2 versions of this paper


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

Bessembinder, Hendrik (Hank) and Kahle, Kathleen M. and Maxwell, William F. and Xu, Danielle, Measuring Abnormal Bond Performance. Review of Financial Studies, Forthcoming, Available at SSRN: or

Hendrik (Hank) Bessembinder

W.P. Carey School of Business ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States


Kathleen M. Kahle

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-7489 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

William F. Maxwell (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Danielle Xu

Gonzaga University ( email )

Spokane, WA 99258
United States

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