Illiquidity-driven bond return synchronicity and information environment

This paper provides comprehensive evidence on how corporate bond illiquidity dampens the incorporation of firm-specific information into bond prices, resulting in lower return synchronicity. Using U.S. corporate bond data from 2002 to 2019, our findings consistently reveal a negative correlation between bond illiquidity and return synchronicity, implying that this illiquidity-driven synchronicity signifies an inferior information environment. After accounting for firm-specific characteristics, implementing robustness checks, and controlling for endogeneity, the result remains robust. Moreover, channel analysis shows that this effect is more pronounced for firms operating in weaker information environment. We also explore the broader determinants of bond return synchronicity, encompassing bond-specific attributes and firm-level fundamentals.

Publication Details

Journal
International Review of Economics & Finance
Published
2025-09-16
DOI
https://doi.org/10.1016/j.iref.2025.104600
Primary Topic
Geochemistry and Geologic Mapping
Type
article
Field-Weighted Citation Impact
0.00
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article

Illiquidity-driven bond return synchronicity and information environment

International Review of Economics & Finance
Geochemistry and Geologic Mapping
article

Illiquidity-driven bond return synchronicity and information environment

article en

Abstract

This paper provides comprehensive evidence on how corporate bond illiquidity dampens the incorporation of firm-specific information into bond prices, resulting in lower return synchronicity. Using U.S. corporate bond data from 2002 to 2019, our findings consistently reveal a negative correlation between bond illiquidity and return synchronicity, implying that this illiquidity-driven synchronicity signifies an inferior information environment. After accounting for firm-specific characteristics, implementing robustness checks, and controlling for endogeneity, the result remains robust. Moreover, channel analysis shows that this effect is more pronounced for firms operating in weaker information environment. We also explore the broader determinants of bond return synchronicity, encompassing bond-specific attributes and firm-level fundamentals.

International Review of Economics & FinanceVol. 104
Industry, innovation and infrastructure
Openalex Percentile: Top 34%
Geochemistry and Geologic Mapping
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