Price impact of corporate bond trading: evidence from the Australian Securities Exchange

Alex Frino*, Andrew Lepone, Grace Lepone

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines the price effects of investment-grade-corporate bond transactions on the Australian Securities Exchange (ASX). Results indicate that both purchases and sales of exchange traded corporate bonds incur significant transaction costs upon execution. Post execution, purchases of all sizes either experience price continuations, or no significant price reversals, suggesting the presence of information. Sales of all sizes experience complete price reversals, implying that selling corporate bonds conveys no information to the market. These results are consistent with the majority of equity market studies that document a similar asymmetry between purchases and sales. Analysis of the determinants of price effects associated with bond market trades reveals that trade-size, market conditions, underlying stock price volatility, underlying stock turnover, bid-ask spreads (BAS), and market depth are associated with the magnitude of price movements surrounding these trades. Contemporaneous equity returns appear to have no effect on the price impact of corporate bonds.

Original languageEnglish
Article number1950020
Pages (from-to)1-22
Number of pages22
JournalReview of Pacific Basin Financial Markets and Policies
Volume22
Issue number3
Early online date2019
DOIs
Publication statusPublished - Sep 2019

Bibliographical note

Firstly published as a conference paper of the World Finance Conference 2013.

Keywords

  • Floating-rate notes
  • information effects
  • liquidity effects
  • price impact

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