Initial Evidence on the Role of Accounting Earnings in the Bond Market

60 Pages Posted: 27 Apr 2009

See all articles by Peter D. Easton

Peter D. Easton

University of Notre Dame - Department of Accountancy

Steven J. Monahan

University of Utah; INSEAD

Florin P. Vasvari

London Business School

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Abstract

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

Easton, Peter D. and Monahan, Steven J. and Vasvari, Florin P., Initial Evidence on the Role of Accounting Earnings in the Bond Market. Available at SSRN: https://ssrn.com/abstract=1378292 or http://dx.doi.org/10.1111/j.1475-679X.2009.00333.x

Peter D. Easton (Contact Author)

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
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Steven J. Monahan

University of Utah ( email )

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INSEAD ( email )

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HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/smonahan/

Florin P. Vasvari

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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