Short selling, divergence of opinion and volatility in the corporate bond market

We investigate the impact of short selling activity on price volatility in the corporate bond market. We find that bond short selling activity is positively related to volatility, trading activity, and the volume-volatility relation. During the Global Financial Crisis, when investors’ expectations t...

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Veröffentlicht in:Journal of economic dynamics & control 2023-02, Vol.147, p.104592, Article 104592
Hauptverfasser: Duong, Huu Nhan, Kalev, Petko S., Tian, Xiao
Format: Artikel
Sprache:eng
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Zusammenfassung:We investigate the impact of short selling activity on price volatility in the corporate bond market. We find that bond short selling activity is positively related to volatility, trading activity, and the volume-volatility relation. During the Global Financial Crisis, when investors’ expectations tend to be more homogenous, the positive relation between short selling activity and price volatility breaks down. We further show that bond short selling is not a substitute for equity short selling and put option trading. Overall, our study highlights the importance of bond short selling as a platform to express investors’ differences of opinion.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2022.104592