The Informativeness of Corporate Bond Trades

Project: Research

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Researcher(s)

Description

The subject of informational efficiency is of considerable interest to academic researchers, regulators, and practitioners. A vast literature has investigated the informational efficiency of a wide range of markets including stocks, futures, options, and foreign exchange. However, relatively few studies exist on the informational efficiency of the fixed income market. As a consequence, little is known about the price discovery process and the overall performance of the corporate bond market.In this project, the researchers will examine the informational efficiency of the corporate bond market relative to the stock market using a data sample containing trades of stocks and bonds of the same firm. They will employ a comprehensive transaction dataset for individual bonds from the TRACE system to examine the information content of trades. The informativeness of corporate bond trades will be measured by the impact of trading volume on return volatility. By using various specifications of the volatility-volume model and return intervals, they will compare the impact of volume on volatility of returns for both bonds and stocks of individual firms. Based on the empirical results, further evidence can be provided on the informational efficiency of the corporate bond market.

Detail(s)

Project number9041293
Grant typeGRF
StatusFinished
Effective start/end date1/01/0827/08/08