Corporate bond prices and idiosyncratic risk: evidence from Australia

Fang, V. and Hung, C.-H. D. (2014) Corporate bond prices and idiosyncratic risk: evidence from Australia. Journal of International Financial Markets, Institutions and Money, 33, pp. 99-114. (doi: 10.1016/j.intfin.2014.07.011)

Abstract

In this paper we investigate the bond price effect upon the information arrival of firm-specific idiosyncratic risk. We consider idiosyncratic dispersion and idiosyncratic volatility that capture, respectively, the direction of information and the magnitude of idiosyncratic risk. We find that idiosyncratic volatility does not affect bond prices, while the direction of idiosyncratic risk which reflects the favorable or unfavorable information exhibits impacts on bond prices. Idiosyncratic dispersion in the stock return of a firm in the preceding week, in general, is positively associated with bond price changes in the current week. This effect is most pronounced for firms exhibiting characteristics associated with lower default risk.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Hung, Dr Daniel
• Authors: Fang, V., and Hung, C.-H. D.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of International Financial Markets, Institutions and Money
• Publisher: Elsevier
• ISSN: 1042-4431
• ISSN (Online): 1873-0612|
• Copyright Holders: Copyright © 2014 Elsevier
• First Published: First published in Journal of International Financial Markets, Institutions and Money 33:99-114
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher.