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Trading Activity in the Corporate Bond Market: A SAD Tale of Macro-Announcements and Behavioral Seasonality?

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  • James J. Forest

    (Assistant Professor of Finance, School of Business Administration, SUNY New Paltz, New Paltz, NY 12561, USA
    Research Associate, Center for International Securities and Derivatives Markets, Isenberg School of Management, University of Massachusetts, Amherst, MA 01003, USA
    Author information: https://scholar.google.com/citations?user=H3NS68sAAAAJ&hl=en .)

  • Ben S. Branch

    (Professor (Emeritus) of Finance, Isenberg School of Management, University of Massachusetts, Amherst, MA 01003, USA)

  • Brian T. Berry

    (Independent)

Abstract

This study investigates the determinants of trading activity in the U.S. corporate bond market, focusing on the effects of Seasonal Affective Disorder (SAD) and macroeconomic announcements. Employing the General-to-Specific (Gets) Autometrics methodology, we identify distinct behavioral responses between retail and institutional investors to SAD, noting a significant impact on retail trading volumes but not on institutional trading or bond returns. This discovery extends the understanding of behavioral finance within the context of bond markets, diverging from established findings in equity and Treasury markets. Additionally, our analysis delineates the influence of macroeconomic announcements on trading activities, offering new insights into the market’s reaction to economic news. This study’s findings contribute to the broader literature on market microstructure and behavioral finance, providing empirical evidence on the interplay between psychological factors and macroeconomic information flow within corporate bond markets. By addressing these specific aspects with rigorous econometric techniques, our research enhances the comprehension of trading dynamics in less transparent markets, offering valuable perspectives for academics, investors, risk managers, and policymakers.

Suggested Citation

  • James J. Forest & Ben S. Branch & Brian T. Berry, 2024. "Trading Activity in the Corporate Bond Market: A SAD Tale of Macro-Announcements and Behavioral Seasonality?," Risks, MDPI, vol. 12(5), pages 1-25, May.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:5:p:80-:d:1394432
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    References listed on IDEAS

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    5. Lifang Li & Valentina Galvani, 2021. "Informed Trading and Momentum in the Corporate Bond Market [Asset pricing with liquidity risk]," Review of Finance, European Finance Association, vol. 25(6), pages 1773-1816.
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