Implied Volatility Changes and Corporate Bond Returns

Jie Cao (), Amit Goyal, Xiao Xiao () and Xintong Zhan ()
Additional contact information
Jie Cao: Faculty of Business, School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong
Xiao Xiao: Bayes Business School, City University London, London EC1Y 8TZ, United Kingdom
Xintong Zhan: School of Management, Fudan University, Shanghai 200433, China

Management Science, 2023, vol. 69, issue 3, 1375-1397

Abstract: Corporate bonds with large increases in implied volatility over the past month underperform those with large decreases in implied volatility by 0.6% per month. In contrast to existing studies that show implied volatility changes carry information about fundamental news, our evidence suggests that implied volatility changes contain information about uncertainty shocks to the firm. Our results are consistent with the notion that informed traders with new information about firm risk prefer to trade in the option market and the corporate bond market underreacts to this information.

Keywords: corporate bonds; implied volatility changes; default risk; information diffusion (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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http://dx.doi.org/10.1287/mnsc.2022.4379 (application/pdf)

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Working Paper: Implied Volatility Changes and Corporate Bond Returns (2019)
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