IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v65y2024ics1544612324005610.html
   My bibliography  Save this article

Cry wolf and it appears: Debt ceiling debates and new corporate bond issues

Author

Listed:
  • Kovacs, Tunde
  • Wang, Yadi

Abstract

We provide evidence that attention to debt ceiling debates affects the pricing of new corporate bond issues. Measuring public attention by using data from the Google Search Volume Index with the keyword “debt ceiling,” we find an increase in bond yields for non-investment grade short maturity issues at times of high attention. Further analysis suggests that the results are likely not due to changes in uncertainty or risk aversion, rather, to attention spillover to lower quality firm's short-term financing needs.

Suggested Citation

  • Kovacs, Tunde & Wang, Yadi, 2024. "Cry wolf and it appears: Debt ceiling debates and new corporate bond issues," Finance Research Letters, Elsevier, vol. 65(C).
  • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005610
    DOI: 10.1016/j.frl.2024.105531
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324005610
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.frl.2024.105531?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Liu, Pu & Shao, Yingying & Yeager, Timothy J., 2009. "Did the repeated debt ceiling controversies embed default risk in US Treasury securities?," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1464-1471, August.
    2. Zhi Da & Joseph Engelberg & Pengjie Gao, 2011. "In Search of Attention," Journal of Finance, American Finance Association, vol. 66(5), pages 1461-1499, October.
    3. David O. Lucca & Emanuel Moench, 2015. "The Pre-FOMC Announcement Drift," Journal of Finance, American Finance Association, vol. 70(1), pages 329-371, February.
    4. David Cashin & Erin E. Syron Ferris & Elizabeth Klee, 2023. "Treasury Safety, Liquidity, and Money Premium Dynamics: Evidence from Debt Limit Impasses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1475-1506, September.
    5. Savor, Pavel & Wilson, Mungo, 2013. "How Much Do Investors Care About Macroeconomic Risk? Evidence from Scheduled Economic Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(2), pages 343-375, April.
    6. Ali Ozdagli & Joe Peek, 2013. "Cliff notes: the effects of the 2013 debt-ceiling crisis," Public Policy Brief, Federal Reserve Bank of Boston.
    7. Nachum Sicherman & George Loewenstein & Duane J. Seppi & Stephen P. Utkus, 2016. "Editor's Choice Financial Attention," The Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 863-897.
    8. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    9. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    10. Kenneth R. Ahern & Denis Sosyura, 2015. "Rumor Has It: Sensationalism in Financial Media," The Review of Financial Studies, Society for Financial Studies, vol. 28(7), pages 2050-2093.
    11. Azi Ben-Rephael & Zhi Da & Ryan D. Israelsen, 2017. "It Depends on Where You Search: Institutional Investor Attention and Underreaction to News," The Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 3009-3047.
    12. Nicholas C. Barberis, 2018. "Psychology-based Models of Asset Prices and Trading Volume," NBER Working Papers 24723, National Bureau of Economic Research, Inc.
    13. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
    14. Niklas Karlsson & George Loewenstein & Duane Seppi, 2009. "The ostrich effect: Selective attention to information," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 95-115, April.
    15. Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2020. "Google search volume and individual investor trading," Journal of Financial Markets, Elsevier, vol. 49(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Umar, Tarik, 2022. "Complexity aversion when SeekingAlpha," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    2. Chen, Xing & Wu, Chongfeng, 2022. "Retail investor attention and information asymmetry: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    3. Meshcheryakov, Artem & Winters, Drew B., 2022. "Retail investor attention and the limit order book: Intraday analysis of attention-based trading," International Review of Financial Analysis, Elsevier, vol. 81(C).
    4. Cai, Haidong & Jiang, Ying & Liu, Xiaoquan, 2022. "Investor attention, aggregate limit-hits, and stock returns," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Zhu, Zhaobo & Sun, Licheng & Yung, Kenneth & Chen, Min, 2020. "Limited investor attention, relative fundamental strength, and the cross-section of stock returns," The British Accounting Review, Elsevier, vol. 52(4).
    6. Goodell, John W. & Kumar, Satish & Li, Xiao & Pattnaik, Debidutta & Sharma, Anuj, 2022. "Foundations and research clusters in investor attention: Evidence from bibliometric and topic modelling analysis," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 511-529.
    7. Huang, Shiyang & Huang, Yulin & Lin, Tse-Chun, 2019. "Attention allocation and return co-movement: Evidence from repeated natural experiments," Journal of Financial Economics, Elsevier, vol. 132(2), pages 369-383.
    8. Diefeng Peng & Yulei Rao & Mei Wang, 2016. "Do Top 10 Lists of Daily Stock Returns Attract Investor Attention? Evidence from a Natural Experiment," International Review of Finance, International Review of Finance Ltd., vol. 16(4), pages 565-593, December.
    9. Alan Crane & Kevin Crotty & Tarik Umar, 2023. "Hedge Funds and Public Information Acquisition," Management Science, INFORMS, vol. 69(6), pages 3241-3262, June.
    10. Cai, Wenwu & Lu, Jing, 2019. "Investors’ financial attention frequency and trading activity," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    11. Ahmad, Fawad & Oriani, Raffaele, 2022. "Investor attention, information acquisition, and value premium: A mispricing perspective," International Review of Financial Analysis, Elsevier, vol. 79(C).
    12. Dong, Dayong & Wu, Keke & Fang, Jianchun & Gozgor, Giray & Yan, Cheng, 2022. "Investor attention factors and stock returns: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    13. Arnold, Marc & Pelster, Matthias & Subrahmanyam, Marti G., 2022. "Attention triggers and investors’ risk-taking," Journal of Financial Economics, Elsevier, vol. 143(2), pages 846-875.
    14. Gang Chu & John W. Goodell & Dehua Shen & Yongjie Zhang, 2022. "Machine learning to establish proxies for investor attention: evidence of improved stock-return prediction," Annals of Operations Research, Springer, vol. 318(1), pages 103-128, November.
    15. Nguyen, Cuong & Hoang, Lai & Shim, Jungwook & Truong, Phuong, 2020. "Internet search intensity, liquidity and returns in emerging markets," Research in International Business and Finance, Elsevier, vol. 52(C).
    16. Yen-Ju Hsu & Yang-Cheng Lu & J. Jimmy Yang, 2021. "News sentiment and stock market volatility," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 1093-1122, October.
    17. Cheng, Feiyang & Wang, Chunfeng & Chiao, Chaoshin & Yao, Shouyu & Fang, Zhenming, 2021. "Retail attention, retail trades, and stock price crash risk," Emerging Markets Review, Elsevier, vol. 49(C).
    18. Choi, Sujung & Choi, Woon Youl, 2019. "Effects of limited attention on investors' trading behavior: Evidence from online ranking data," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 273-289.
    19. Wang, Albert Y. & Young, Michael, 2023. "Mood, attention, and household trading: Evidence from terrorist attacks," Journal of Financial Markets, Elsevier, vol. 66(C).
    20. Michaely, Roni & Rubin, Amir & Vedrashko, Alexander, 2016. "Are Friday announcements special? Overcoming selection bias," Journal of Financial Economics, Elsevier, vol. 122(1), pages 65-85.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324005610. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.