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

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  • Duong, Huu Nhan
  • Kalev, Petko S.
  • Tian, Xiao

Abstract

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.

Suggested Citation

  • Duong, Huu Nhan & Kalev, Petko S. & Tian, Xiao, 2023. "Short selling, divergence of opinion and volatility in the corporate bond market," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:dyncon:v:147:y:2023:i:c:s0165188922002950
    DOI: 10.1016/j.jedc.2022.104592
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    More about this item

    Keywords

    Short selling; Corporate bond market; Difference of opinion; Volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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