Dealer Liquidity Provision and the Breakdown of the Law of One Price: Evidence from the CDS–Bond Basis

2019 ◽  
Vol 65 (9) ◽  
pp. 4100-4122 ◽  
Author(s):  
Jaewon Choi ◽  
Or Shachar ◽  
Sean Seunghun Shin
Keyword(s):  
Bond Market ◽  
Law Of One Price ◽  
Corporate Bond ◽  
Financial Intermediaries ◽  
Corporate Bond Market ◽  
Liquidity Provision ◽  
Credit Default ◽  
Bond Returns ◽  
Lehman Brothers ◽  
Arbitrage Trading

We examine dealers’ liquidity provision against mispricing in the corporate bond market from 2005 to 2009. Dealers on average serve as stabilizing liquidity providers by trading against widening price gaps between corporate bonds and credit default swaps (the CDS–bond basis). However, dealers cut back on liquidity provision as they suffer losses, mispricing becomes wider, or the funding situation worsens, consistent with the limited capital capacity of financial intermediaries. We also show that the unwinding of basis arbitrage trading can amplify mispricing by documenting that bond returns following the Lehman collapse were very low for bonds with strong preexisting basis arbitrage activity and for bonds underwritten by Lehman Brothers. Liquidity demand due to the exit of arbitrageurs can be a major driver of disruption in credit markets. This paper was accepted by Lauren Cohen, finance.

An Empirical Investigation Of The Persistence Of Stock And Bond Return Seasonality

2011 ◽  
Vol 16 (2) ◽  
Author(s):  
Angeline M. Lavin
Keyword(s):  
Stock Returns ◽  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
Average Return ◽  
Bond Returns ◽  
Bond Return ◽  
The Government ◽  
Using Data ◽  
Return Seasonality

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: &quot;CG Times&quot;,&quot;serif&quot;;"><span style="font-size: x-small;">The purpose of this paper is to investigate the persistence of seasonality in stock and bond returns using data from 1926 to 1992. This study finds evidence of seasonality in stock returns during the 1926-92 period.<span style="mso-spacerun: yes;">&nbsp; </span>Dividing the data into sub-periods yields the following results: there was no evidence of stock market seasonality from 1926 to 1940, seasonality increased between 1941 and 1975 and then diminished slightly from 1976 to 1992. Specifically, the average January return was found to be significantly different than the average return in the other eleven months of the year.<span style="mso-spacerun: yes;">&nbsp; </span>Seasonality was found in the high-quality end of the corporate bond market during the 1966-78 period, but there was no evidence of seasonality in the government bond market. </span></span></p>

The Relative Informational Efficiency of Stocks and Bonds: An Intraday Analysis

2009 ◽  
Vol 44 (5) ◽  
pp. 1081-1102 ◽  
Author(s):  
Chris Downing ◽  
Shane Underwood ◽  
Yuhang Xing
Keyword(s):  
Stock Returns ◽  
Financial Distress ◽  
High Frequency ◽  
Convertible Bonds ◽  
Bond Market ◽  
Corporate Bond ◽  
Informational Efficiency ◽  
Corporate Bond Market ◽  
Market Transparency ◽  
Bond Returns

AbstractIn light of recent improvements in the transparency of the corporate bond market, we examine the relation between high frequency returns on individual stocks and bonds. In contrast to the authors of previous literature, we employ comprehensive transactions data for both classes of securities. We find that hourly stock returns lead bond returns for nonconvertible junk- and BBB-rated bonds, and that stock returns lead bond returns for convertible bonds in all rating classes. Most of the predictable nonconvertible bonds are issued by companies in financial distress, while the predictable convertible bonds are those with conversion options more deeply in-the-money. These results indicate that the corporate bond market is less informationally efficient than the stock market, notwithstanding the recent improvements in bond market transparency and associated reductions in corporate bond transaction costs.

scholarly journals Corporate Bond Returns And Weekday Seasonality

2011 ◽  
Vol 13 (1) ◽  
pp. 9 ◽  
Author(s):  
Bahram Adrangi ◽  
Farrokh Ghazanfari
Keyword(s):  
Corporate Bonds ◽  
Bond Market ◽  
Weekend Effect ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
Bond Returns

<span>This study examines trading day and calendar day returns-generating processes and tests the weekend effect in the corporate bond market. We reject the calendar day hypothesis while the trading day hypothesis cannot be rejected as the corporate bonds returns-generating process. Furthermore, we find a reverse weekend effect in the corporate bond market in that Monday returns are on-average positive and statistically significant in this sample.</span>

Momentum in Korean Corporate Bond Market

2020 ◽  
Vol 33 (3) ◽  
pp. 301-338
Author(s):  
Minyeon Han ◽  
◽  
Jemoon Woo ◽  
Hyounggoo Kang
Keyword(s):  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market
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