Informed Trading in a Corporate Bond Market PDF Download

Author: Denis Lapitski
Publisher:
ISBN:
Category : Corporate bonds
Languages : en
Pages : 102

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Author: Xing Zhou
Publisher:
ISBN:
Category :
Languages : en
Pages : 246

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Author: Simi Kedia
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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Book Description
This paper examines the prevalence of informed trading in the corporate debt market prior to takeover announcements. Unlike target stocks, target bonds do not always gain in an acquisition. Target bonds rated higher than the acquirer's stand to lose whereas those rated lower stand to gain. We find significant pre-announcement trading activities and price movements in target bonds, in directions consistent with the nature of pending information. Since selling (buying) target bonds that stand to lose (gain) prior to the public announcement requires information about acquirer characteristics, our evidence is less likely to be due to market anticipation, and is consistent with informed trading. We find that improved transparency in the bond markets achieved by the implementation of the TRACE system reduces the incidence of informed trading. Further, there is some weak evidence that bond dealers affiliated with Mamp;A advisors sell in anticipation of negative news on bonds, pointing to a possible channel of information leakage. Such negative news seems to be incorporated into bond prices no slower than into the target stocks.

Author: Robert Czech
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Lifang Li
Publisher:
ISBN: 9781529630329
Category : Corporate bonds
Languages : en
Pages : 0

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Book Description
This case study is based on our research article in the Review of Finance in 2021. The study explores differences in information level across the corporate bonds issued by the same firm and draws implications for the profitability of momentum investing. Taking advantage of the unique features of the corporate bond market, our results identify informed trading as the key factor in determining different momentum return patterns among bonds that attract different levels of institutional investors' trading activities.This case study reports essential aspects of our research process leading to the paper's results, which contributes to the discovery of the mechanism underlying the momentum effect and provides insights for understanding the market efficiency of the U.S. corporate bond market. Those aspects include adapting existing data cleaning and estimation methodologies to our purposes and improving the structure and reasoning of our empirical analysis to better link to our theoretical predictions. Readers should be able to learn from our successes and failures and apply the techniques and reasoning process in their research practice.

Author: Thierry Foucault
Publisher: Oxford University Press
ISBN: 0197542069
Category : Capital market
Languages : en
Pages : 531

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Book Description
"The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--

Author: Malachy Edward English
Publisher:
ISBN:
Category :
Languages : en
Pages : 97

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This dissertation evaluates the importance of the uncapped Enhanced TRACE dataset that has previously been rarely used within academic literature. In doing so I answer two important questions, one relevant to academic researchers, and one relevant to financial regulators. First, how economically significant are the differences between the Enhanced TRACE dataset and the Historic TRACE dataset that has been used previously? Secondly, are these differences a result of informed trading, and thus potentially in need of the protection provided by the caps currently imposed by TRACE? I find striking differences between the two datasets. Hidden volume in the periods preceding earnings announcements occurs frequently and is large in size, often exceeding 30% of total volume in the period. Despite this, I find little evidence to suggest that this trading volume is driven by informed investors. The hidden volume shows little ability to anticipate the news in earnings announcements and appears to be somewhat randomly distributed throughout time. My research suggests that researchers should move away from the Historic TRACE dataset and instead utilize the new Enhanced TRACE dataset when examining corporate bond markets. In addition, my research, suggests that large block trades typically are not informed. This provides preliminary evidence supporting the view, held by many market participants, that regulators should remove the currently imposed TRACE dissemination caps. My research supports the claims of these market participants that the caps simply inhibit investors from accurately assessing the quality of trade execution they have received from broker-dealers.

Author: Ryan Lewis
Publisher:
ISBN:
Category :
Languages : en
Pages : 35

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Book Description
This paper examines the effects of post-trade price transparency on the allocation of trading surplus in the corporate bond market. Using the introduction of TRACE as a natural experiment, we show that dealer profits are unconditionally lower when trade prices are disseminated. However, conditional on facing a customer imbalance, dealers perform better when trades are published because they can use that information to adjust prices more quickly to their future level. We provide evidence that prices are less informative after TRACE, consistent with price transparency reducing incentives for informed traders to participate in the market.

Author: Hao Jiang
Publisher:
ISBN:
Category :
Languages : en
Pages : 53

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Book Description
Both macroeconomic and firm-specific news contain value-relevant information for corporate bonds. In this article, we show that trading volume in corporate bonds spikes before the release of scheduled macroeconomic news but on the days with and after scheduled firm-specific news. Since investors are less likely to be concerned with asymmetric information about macroeconomic than firm-specific news to be released, this result suggests that the anticipated arrival of macroeconomic news promotes speculative trades, whereas the arrival of firm-specific news encourages liquidity trades. Turning to liquidity, we find evidence of reduced informed trading and increased corporate bond liquidity on days with firm-specific news, but not on days with macroeconomic news.

Author: Yifei Mao
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

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Book Description
This paper uses intraday U.S. bond transaction and stock quote data to investigate whether corporate bonds lead stocks in price discovery of underlying firm value. I use Hasbrouck's (1995) "information share" approach to determine the relative contribution of corporate bonds to price discovery. Based on a sample of 214 firms, I find that corporate bond markets contribute 12.6% on average to price discovery from 2009 to 2011. Corporate bond market price discovery increases with the riskiness of the underlying firm value, and is related to contemporaneous market conditions. The findings are consistent with the informed trading theory and Merton (1973) model.