Disagreement and Bond PEAD
96 Pages Posted: 7 Feb 2022 Last revised: 6 Feb 2024
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: Suggested Citation