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The Relative Informational Efficiency of Stocks and Bonds: An Intraday Analysis


  • Downing, Chris
  • Underwood, Shane
  • Xing, Yuhang


In light of recent improvements in the transparency of the corporate bond market, we examine the relation between high frequency returns on individual stocks and bonds. In contrast to the authors of previous literature, we employ comprehensive transactions data for both classes of securities. We find that hourly stock returns lead bond returns for nonconvertible junk- and BBB-rated bonds, and that stock returns lead bond returns for convertible bonds in all rating classes. Most of the predictable nonconvertible bonds are issued by companies in financial distress, while the predictable convertible bonds are those with conversion options more deeply in-the-money. These results indicate that the corporate bond market is less informationally efficient than the stock market, notwithstanding the recent improvements in bond market transparency and associated reductions in corporate bond transaction costs.

Suggested Citation

  • Downing, Chris & Underwood, Shane & Xing, Yuhang, 2009. "The Relative Informational Efficiency of Stocks and Bonds: An Intraday Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(05), pages 1081-1102, October.
  • Handle: RePEc:cup:jfinqa:v:44:y:2009:i:05:p:1081-1102_99

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    Cited by:

    1. Marsch, I. & Wagner, W.B., 2012. "Why is Price Discovery in Credit Default Swap Markets News-Specific?," Discussion Paper 2012-006, Tilburg University, Center for Economic Research.
    2. Zhang, Tai-Wei & Wu, Wei-Hwa, 2014. "The asymmetric predictability of high-yield bonds," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 146-155.
    3. Marielle de Jong & Lauren Stagnol, 2016. "A fundamental bond index including solvency criteria," Journal of Asset Management, Palgrave Macmillan, vol. 17(4), pages 280-294, July.
    4. Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
    5. repec:eee:finmar:v:38:y:2018:i:c:p:60-82 is not listed on IDEAS
    6. Hong, Yongmiao & Lin, Hai & Wu, Chunchi, 2012. "Are corporate bond market returns predictable?," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2216-2232.
    7. repec:eee:reveco:v:51:y:2017:i:c:p:174-192 is not listed on IDEAS
    8. van Zundert, Jeroen, 2018. "Empirical studies on the cross-section of corporate bond and stock markets," Other publications TiSEM 338205fc-a031-4e06-a636-9, Tilburg University, School of Economics and Management.
    9. Balasubramnian, Bhanu & Cyree, Ken B., 2014. "Has market discipline on banks improved after the Dodd–Frank Act?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 155-166.
    10. Derrien, François & Kecskés, Ambrus & Mansi, Sattar A., 2016. "Information asymmetry, the cost of debt, and credit events: Evidence from quasi-random analyst disappearances," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 295-311.
    11. Tolikas, Konstantinos, 2016. "The relative informational efficiency of corporate retail bonds: Evidence from the London Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 191-201.
    12. Kalimipalli, Madhu & Nayak, Subhankar, 2012. "Idiosyncratic volatility vs. liquidity? Evidence from the US corporate bond market," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 217-242.
    13. Kalimipalli, Madhu & Nayak, Subhankar & Perez, M. Fabricio, 2013. "Dynamic effects of idiosyncratic volatility and liquidity on corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2969-2990.
    14. Chen, Fan, 2016. "The wealth effects of dividend announcements on bondholders: New evidence from the over-the-counter market," Journal of Economics and Business, Elsevier, vol. 86(C), pages 52-75.
    15. Paul Mizen & Veronica Veleanu, 2015. "On the Information Flow from Credit Derivatives to the Macroeconomy," Discussion Papers 2015/21, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    16. May, Anthony D., 2010. "The impact of bond rating changes on corporate bond prices: New evidence from the over-the-counter market," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2822-2836, November.
    17. Shynkevich, Andrei, 2016. "Predictability in bond returns using technical trading rules," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 55-69.
    18. repec:eee:phsmap:v:505:y:2018:i:c:p:632-647 is not listed on IDEAS
    19. Henry, Tyler R. & Kisgen, Darren J. & Wu, Juan (Julie), 2015. "Equity short selling and bond rating downgrades," Journal of Financial Intermediation, Elsevier, vol. 24(1), pages 89-111.
    20. Charfeddine, Lanouar & Khediri, Karim Ben & Aye, Goodness C. & Gupta, Rangan, 2018. "Time-varying efficiency of developed and emerging bond markets: Evidence from long-spans of historical data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 632-647.
    21. repec:eee:jaecon:v:64:y:2017:i:1:p:167-182 is not listed on IDEAS
    22. repec:eee:intfin:v:51:y:2017:i:c:p:39-57 is not listed on IDEAS
    23. repec:eee:eneeco:v:69:y:2018:i:c:p:101-110 is not listed on IDEAS

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