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The relative informational efficiency of corporate retail bonds: Evidence from the London Stock Exchange

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  • Tolikas, Konstantinos

Abstract

I examine the relative informational efficiency of the London Stock Exchange's newly launched Order book for Retail Bonds (ORB). I find that the daily returns for the stocks of the issuing firms lead the daily returns of the retail bonds born in the ORB. This finding also holds for pre-existing bonds that were transferred to the ORB from the LSE's Main Market and for the bonds with different credit ratings, issue sizes, and maturity times. I also find that bonds have very limited predictive ability for stock returns. Overall, the results provide strong evidence that the underlying stock market is relatively more efficient than the ORB. Further, the relative informational inefficiency of the ORB implies profitable trading opportunities for private investors.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:finana:v:46:y:2016:i:c:p:191-201
    DOI: 10.1016/j.irfa.2016.05.003
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    More about this item

    Keywords

    Order book for Retail Bonds; Relative informational efficiency; Corporate retail bonds; Lead–lag relation; London Stock Exchange;

    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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