Disagreement and Bond PEAD

96 Pages Posted: 7 Feb 2022 Last revised: 6 Feb 2024

See all articles by Yoshio Nozawa

Yoshio Nozawa

University of Toronto

Yancheng Qiu

The University of Sydney

Yan Xiong

The Hong Kong University of Science and Technology

Date Written: August 1, 2022

Abstract

This paper documents empirical evidence of post-earnings announcement drift (PEAD) in corporate bond prices using transaction data. We find a counterintuitive relationship between the drift and trading volume: PEAD is more pronounced for more heavily traded bonds than for less frequently traded bonds. Across markets, PEAD is observed for credit default swaps but not for stocks. We explain these findings using a stylized model in which investors agree to disagree on the valuation of a risky asset. Our empirical evidence supports the model's prediction that disagreement, noise trading intensity, and transaction costs explain the observed price drift across asset classes.

Keywords: Disagreement, Liquidity, Informational Efficiency, Corporate Bonds, Post Earnings Announcement Drift

JEL Classification: G12, G13

Suggested Citation

Nozawa, Yoshio and Qiu, Yancheng and Xiong, Yan, Disagreement and Bond PEAD (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=3990000 or http://dx.doi.org/10.2139/ssrn.3990000

Yoshio Nozawa (Contact Author)

University of Toronto ( email )

105 St George St
Toronto, ON M5S3E6
Canada
3013125569 (Phone)

Yancheng Qiu

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Yan Xiong

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

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