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The Informativeness of Corporate Bond Trades

Author

Listed:
  • 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)

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.

Suggested Citation

  • Peter Chen & Junbo Wang & Chunchi Wu, 2011. "The Informativeness of Corporate Bond Trades," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 14(03), pages 367-428.
    • Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:03:n:s0219091511002196
    DOI: 10.1142/S0219091511002196
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    Citations

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    Cited by:

    1. Alex Frino & Andrew Lepone & Grace Lepone, 2019. "Price Impact of Corporate Bond Trading: Evidence from the Australian Securities Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(03), pages 1-22, September.

    More about this item

    Keywords

    Corporate bond; VAR; ARCH-GARCH; stock; informedness;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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