Where did all the Information Go? Trade in the Corporate Bond Market

摘要

This paper examines the informational efficiency of the institutional and retail sectors of the corporate bond market. While retail trades react quickly to earnings news (within one hour), institutional trades react within the shortest time horizons considered (5 minutes). We reconcile previous mixed stock/bond lead-lag conclusions by showing how erroneous inferences may stem from incorrectly ignoring trade size and overnight trades. Inference reversals are obtained when these are accounted for, showing stocks do not necessarily lead bonds. Our analysis explicitly accounts for the fact that information-based trading may shift across bonds issued by the same firm. We provide strong evidence that the corporate bond market serves an important venue for information-based trading, especially when the stock market is closed. Strategic information trade is evidenced by behavior on good and bad news days. Surprisingly, investment-grade bonds display quick reactions to firm-specific information at short horizons, driven by BBB bonds which anticipate future downgrades.