News and Corporate Bond Liquidity

• In Event: Spillover effects on disclosure

Abstract

Both macroeconomic and firm-specific news contain value-relevant information for corporate bonds. In this article, we show that trading volume in corporate bonds spikes before the release of scheduled macroeconomic news but on the days with and after scheduled firm-specific news. Since investors are less likely to be concerned with asymmetric information about macroeconomic than firm-specific news to be released, this result suggests that the anticipated arrival of macroeconomic news promotes speculative trades, whereas the arrival of firm-specific news encourages liquidity trades. Turning to liquidity, we find evidence of reduced informed trading and increased corporate bond liquidity on days with firm-specific news, but not on days with macroeconomic news. The joint behavior of volume and liquidity surrounding firm-level and macroeconomic news announcement indicates that adverse selection concern is an important factor determining corporate bond liquidity.

Authors

• Hao Jiang, Michigan State University

• Zheng Sun, University of California, Irvine