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Asymmetric Information, Predictability and Momentum in the Corporate Bond Market

Author

Listed:
  • Galvani, Valentina

    (University of Alberta, Department of Economics)

  • Li, Lifang

    (University of Alberta, Department of Economics)

Abstract

We show that firm-level cross-asset predictability for bonds with a high incidence of informed trading is mostly driven by information diffusion. In contrast, the activities of uninformed investors dominate in originating predictability for the remaining bonds in the firm-level cross-section. Capitalizing on these results, we explore the role of informed and uninformed trading in determining the momentum effect. We find that gradual information diffusion is the main driver of short-term momentum. However, the effect of uninformed trading may outweigh that of information in generating large momentum returns, as it is the case for private-issuer bonds.

Suggested Citation

  • Galvani, Valentina & Li, Lifang, 2018. "Asymmetric Information, Predictability and Momentum in the Corporate Bond Market," Working Papers 2018-17, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2018_017
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    References listed on IDEAS

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    More about this item

    Keywords

    asymmetric information; informed trading; uninformed trading; predictability; momentum; corporate bonds;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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