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Corporate bond prices and idiosyncratic risk: Evidence from Australia

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  • Fang, Victor
  • Hung, Chi-Hsiou D.

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.

Suggested Citation

  • Fang, Victor & Hung, Chi-Hsiou D., 2014. "Corporate bond prices and idiosyncratic risk: Evidence from Australia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 99-114.
    • Handle: RePEc:eee:intfin:v:33:y:2014:i:c:p:99-114
    DOI: 10.1016/j.intfin.2014.07.011
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    More about this item

    Keywords

    Idiosyncratic risk; Idiosyncratic dispersion; Idiosyncratic volatility; Corporate bond price; Australian bond markets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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