Journal of Financial Markets Vol. 68 2024
Corporate bond price reversals
Abstract
I demonstrate empirically that corporate bond dealers mitigate adverse selection risk by passing potentially informed transactions to institutional investors. I contrast price reversals following days with abnormal trading volume across bonds with different information asymmetry. In informed trading, the part of reversal specific to high-volume days should increase with information asymmetry. In uninformed trading, there is no such effect. Following high-volume days when investors provide liquidity, the reversals are consistent with the former case. When dealers provide liquidity, I observe the latter. The results suggest that the informational content of bond prices is higher when dealers do not take inventory.
- DOI
- 10.1016/j.finmar.2023.100880
- Volume
- 68
- Pages
- 100880
- Language
- en
- Sources
- crossref openalex