Initial Evidence on the Role of Accounting Earnings in the Bond Market
60 Pages Posted: 27 Apr 2009
We document that: (1) the incidence of bond trade increases during the days surrounding earnings announcements; (2) there is a bond-price reaction to the announcement of earnings; and (3) there is a positive association between annual bond returns and both annual changes in earnings and annual analysts' forecast errors. All of these effects are larger when earnings convey bad news or when the underlying bond is more risky. Taken together, our results suggest that the nonlinear payoff structure of bond securities affects the role of accounting earnings in the bond market.
JEL Classification: G12, M41, G29, G32
Suggested Citation: Suggested Citation