We thank the editor, Robert Van Ness, two anonymous referees, Jean Helwege, Andre Liebenberg, and Andy Puckett, Catherine Shenoy, Kelly Welch, and seminar participants at the 2008 FMA Conference, the 2008 CRSP Forum, and the University of Kansas for their comments and suggestions.
What Does the Corporate Bond Market Know?
Article first published online: 17 JAN 2014
© 2014 The Eastern Finance Association
Volume 49, Issue 1, pages 1–19, February 2014
How to Cite
Bittlingmayer, G. and Moser, S. M. (2014), What Does the Corporate Bond Market Know?. Financial Review, 49: 1–19. doi: 10.1111/fire.12023
- Issue published online: 17 JAN 2014
- Article first published online: 17 JAN 2014
- corporate bonds;
- informational efficiency;
- market liquidity;
Do related markets reflect new information simultaneously? For high-yield bonds, a large abnormal price decline in a corporation's most liquid bond over a month is followed by an average abnormal stock price decline of −1.42%. This effect is larger for stocks that have increased in value and for volatile stocks. It is also larger for bonds with high coupons and shorter maturities. These results support the view that high-yield corporate bonds have an informational edge when news is negative and stock returns are noisy, and add to the growing literature on the substantial lags in price discovery between related markets.