USF St. Petersburg campus Faculty Publications
Bond market event study methods.
Document Type
Article
Publication Date
2015
ISSN
0378-4266
Abstract
The procedures used in corporate bond event studies to date fail to control for heteroskedasticity due to differences in return volatility by term-to-maturity, rating, and other factors resulting in low test power. Bond return standardization yields considerably more powerful tests. Also, due to infrequent trading, use of bond transaction price observations over several days before and after an event, while giving more weight to returns calculated from transactions closer to the event, yields considerably more powerful tests than returns based solely on transactions the day before and the day after the event. Exploring the test bias caused by overlapping event dates, we find that, adjusted for rating and maturity, the correlation among standardized abnormal bond returns is small but that even fairly small correlations can result in biased test statistics. A bond market modification of the Kolari and Pynnönen (2010) procedure corrects this bias.
Language
en_US
Publisher
Elsevier
Recommended Citation
Ederington, L.H., Guan, W., & Yang, L.Z. (2015). Bond market event study methods. Journal of Banking & Finance 58, 281-293. doi:10.1016/j.jbankfin.2015.03.013
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
Abstract only. Full-text article is available through licensed access provided by the publisher. Published in Journal of Banking & Finance 58, 281-293. doi:10.1016/j.jbankfin.2015.03.013. Members of the USF System may access the full-text of the article through the authenticated link provided.