Rights statement: The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 55 (1), pp 77-115 2018, © 2018 Cambridge University Press.
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Short Selling and Price Discovery in Corporate Bonds
AU - Hendershott, Terrence
AU - Kozhan, Roman
AU - Raman, Vikas
N1 - The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 55 (1), pp 77-115 2018, © 2018 Cambridge University Press.
PY - 2020/2/1
Y1 - 2020/2/1
N2 - 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 Brothers’ collapse of 2008. 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.
AB - 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 Brothers’ collapse of 2008. 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.
KW - Short Selling
KW - Corporate Bonds
KW - Financial Crisis
U2 - 10.1017/S0022109018001539
DO - 10.1017/S0022109018001539
M3 - Journal article
VL - 55
SP - 77
EP - 115
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 1
ER -