Informed Trading in Corporate Bonds Prior to Earnings Announcements

摘要

This paper examines the information content of corporate bond trading prior to earnings announcements using data from both NAIC and TRACE. We find that the direction of pre-announcement bond trading is closely related to earnings surprises. This link is most evident prior to negative news and in high-yield bonds. Further, abnormal bond trading during the pre-announcement period can help predict both earnings surprises and post-announcement bond returns. Such predictive ability of bond trading largely originates from institutional-sized trades and is concentrated in the issuer's most actively traded bond. Finally, even after accounting for transactions costs, informed bond trading can generate significant net profits, especially prior to the release of bad news.