Bond market event study methods.

SelectedWorks Author Profiles:

Wei Guan

Document Type


Publication Date


Date Issued

January 2015

Date Available

August 2016




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.


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.





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Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.