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Short selling and price discovery in corporate bonds
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Hendershott, Terrence, Kozhan, Roman and Raman, Vikas (2020) Short selling and price discovery in corporate bonds. Journal of Financial and Quantitative Analysis, 55 (1). pp. 77-115. doi:10.1017/S0022109018001539 ISSN 0022-1090.
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Official URL: https://doi.org/10.1017/S0022109018001539
Abstract
We show short selling in corporate bonds forecasts future bond returns. Short selling predicts bond returns where private information is more likely, in high-yield bonds, particularly after Lehman’s collapse. Short selling predicts returns following both high and low past bond returns. This, together with short selling increasing following past buying order imbalances, suggests short sellers trade against price pressures as well as trade on information. Short selling predicts bond returns both in the individual bonds that are shorted and in other bonds by the same issuer. Past stock returns and short selling in stocks predict bond returns, but do not eliminate bond short selling predicting bond returns. Bond short selling does not predict the issuer’s stock returns. These results show bond short sellers contribute to efficient bond prices and that short sellers’ information flows from stocks to bonds, but not from bonds to stocks.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Short selling (Securities), Corporate bonds, Bonds -- Prices, Financial crises | ||||||||
Journal or Publication Title: | Journal of Financial and Quantitative Analysis | ||||||||
Publisher: | Cambridge University Press | ||||||||
ISSN: | 0022-1090 | ||||||||
Official Date: | February 2020 | ||||||||
Dates: |
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Volume: | 55 | ||||||||
Number: | 1 | ||||||||
Page Range: | pp. 77-115 | ||||||||
DOI: | 10.1017/S0022109018001539 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | This article has been accepted for publication in a revised form for publication in https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Copyright Holders: | © Michael G. Foster School of Business, University of Washington 2018 | ||||||||
Date of first compliant deposit: | 17 September 2018 | ||||||||
Date of first compliant Open Access: | 18 September 2018 | ||||||||
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