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A causal link between bond liquidity and stock returns

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  • Anderson, Mike

Abstract

I investigate the causal relationship between bond liquidity and stock returns. An improvement in bond liquidity can positively impact stock returns by reducing funding costs and improving profitability. To investigate this effect, I construct a natural experiment around the implementation of the Trade Reporting and Compliance Engine (TRACE). I find a 2.2% cumulative average abnormal equity return for firms that appeared in TRACE on the first dissemination date (July 1, 2002). Moreover, average abnormal returns are significantly related to the improvement in bond liquidity, the probability of informed trading, leverage, growth opportunities, and propensity to access corporate debt.

Suggested Citation

  • Anderson, Mike, 2017. "A causal link between bond liquidity and stock returns," Journal of Empirical Finance, Elsevier, vol. 44(C), pages 190-208.
    • Handle: RePEc:eee:empfin:v:44:y:2017:i:c:p:190-208
    DOI: 10.1016/j.jempfin.2017.09.002
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    2. Suhendra . & Etty Murwaningsari, 2019. "The Effect of Accounting Information and Tax Information on Trading Value Moderated by Competitive Strategy," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 6(2), pages 43-50.

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