Short Selling, Divergence of Opinion and Volatility in the Corporate Bond Market

42 Pages Posted: 18 Aug 2018 Last revised: 21 Feb 2023

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Petko S. Kalev

RoZetta Institute; La Trobe Business School

Xiao Tian

Swinburne University of Technology - Department of Accounting, Economics, and Finance

Date Written: May 1, 2021

Abstract

We investigate the impact of short selling activity on price volatility in the corporate bond market. We find that bond short selling activity is positively related to volatility, trading activity, and the volume-volatility relation. During the Global Financial Crisis, when investors’ expectations tend to be more homogenous, the positive relation between short selling activity and price volatility breaks down. We further show that bond short selling is not a substitute for equity short selling and put option trading. Overall, our study highlights the importance of bond short selling as a platform to express investors’ differences of opinion.

Keywords: Short Selling; Corporate Bond Market; Difference of Opinion; Volatility

JEL Classification: G12; G14

Suggested Citation

Duong, Huu Nhan and Kalev, Petko S. and Tian, Xiao, Short Selling, Divergence of Opinion and Volatility in the Corporate Bond Market (May 1, 2021). Journal of Economic Dynamics & Control (2023) 147, 104592, 31st Australasian Finance and Banking Conference 2018, Available at SSRN: https://ssrn.com/abstract=3234262 or http://dx.doi.org/10.2139/ssrn.3234262

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev

RoZetta Institute ( email )

Sydney

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Xiao Tian (Contact Author)

Swinburne University of Technology - Department of Accounting, Economics, and Finance ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia

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