Corporate bond price reversals

Alexey Ivashchenko

Journal of Financial Markets, 2024, vol. 68, issue C

Abstract: I demonstrate empirically that corporate bond dealers mitigate adverse selection risk by passing potentially informed transactions to institutional investors. I contrast price reversals following days with abnormal trading volume across bonds with different information asymmetry. In informed trading, the part of reversal specific to high-volume days should increase with information asymmetry. In uninformed trading, there is no such effect. Following high-volume days when investors provide liquidity, the reversals are consistent with the former case. When dealers provide liquidity, I observe the latter. The results suggest that the informational content of bond prices is higher when dealers do not take inventory.

Keywords: Corporate bonds; Trading volume; Reversal; Informed trading; Dealer inventory (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:68:y:2024:i:c:s1386418123000782

DOI: 10.1016/j.finmar.2023.100880

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