"Buy the Rumor, Sell the News": Liquidity Provision by Bond Funds Following Corporate News Events
Publication Date
11-9-2023
Abstract
Using a comprehensive database of corporate news, we find that bond funds trade against the direction of news sentiment. The trading against news phenomenon is concentrated in funds selling on positive news and in the post-financial crisis period when dealer liquidity provision is constrained. Funds in so doing exhibit higher alphas, and a potential source of such alphas is bond price reversals post news events. Our findings highlight that bond mutual funds represent a significant liquidity provider in the corporate bond market and play a complementary role to dealers in corporate news events.
Document Type
Article
Keywords
Fixed income mutual funds, Corporate bonds, Institutional trading, Public news, Textual analysis
Disciplines
Finance
DOI
10.2139/ssrn.3980151
Source
SMU Cox: Finance (Topic)
Language
English
