The Informativeness of Corporate Bond Trades

Peter Chen (), Junbo Wang () and Chunchi Wu ()
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Peter Chen: Youngstown State University, Youngstown, Ohio, USA
Junbo Wang: City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong, SAR, Hong Kong
Chunchi Wu: Department of Finance and Managerial Economics, State University of New York, Buffalo, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2011, vol. 14, issue 03, 367-428

Abstract: This paper examines the informational role of trades in the corporate bond market. Using transaction data, we compare the temporal relation between volume and volatility of returns for both bonds and stocks issued by the same firms. We find a dramatic difference between these two securities. While there is a strong positive relation between return volatility and volume for stocks, this relation is much weaker for corporate bonds. This finding holds not only for straight bonds but also for callable and convertible bonds. Empirical evidence reveals a very different relation between volatility and volume in the corporate bond market than predicted by standard microstructure models. Results show that the role of volume and trade frequency can be quite different across asset classes.

Keywords: Corporate bond; VAR; ARCH-GARCH; stock; informedness (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219091511002196

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