TY - JOUR
T1 - Short selling, divergence of opinion and volatility in the corporate bond market
AU - Duong, Huu Nhan
AU - Kalev, Petko S.
AU - Tian, Xiao
N1 - Funding Information:
We thank seminar and conference participants at La Trobe University, the Australasian Finance and Banking Conference, and the Annual Conference of the Multinational Finance Society for their helpful comments and suggestions. Special thanks to Yichao Zhu from Australian National University for insightful discussion and suggestions. The views expressed are those of the authors and do not necessarily reflect the views of the Victorian Department of Treasury and Finance. All remaining errors are our own.
Publisher Copyright:
© 2022
PY - 2023/2
Y1 - 2023/2
N2 - 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.
AB - 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.
KW - Corporate bond market
KW - Difference of opinion
KW - Short selling
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85149790080&partnerID=8YFLogxK
U2 - 10.1016/j.jedc.2022.104592
DO - 10.1016/j.jedc.2022.104592
M3 - Article
AN - SCOPUS:85149790080
SN - 0165-1889
VL - 147
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
M1 - 104592
ER -