@article{5a3f451382e849aeb7aa397b42bbb7dc,
title = "Implied Volatility Changes and Corporate Bond Returns",
abstract = "Corporate bonds with large increases in implied volatility over the past month underperform those with large decreases in implied volatility by 0.6% per month. In contrast to existing studies that show implied volatility changes carry information about fundamental news, our evidence suggests that implied volatility changes contain information about uncertainty shocks to the firm. Our results are consistent with the notion that informed traders with new information about firm risk prefer to trade in the option market and the corporate bond market underreacts to this information.",
keywords = "corporate bonds, default risk, implied volatility changes, information diffusion",
author = "Jie Cao and Amit Goyal and Xiao Xiao and Xintong Zhan",
note = "Funding Information: We thank the Canadian Derivatives Institute for financial support. J. Cao and X. Zhan acknowledge generous financial support of the Research Grant Council of the Hong Kong Special Administrative Region, China [Grants GRF 14501720, 14500919]. The authors thank the editor, Haoxiang Zhu; an anonymous associate editor; and two anonymous reviewers as well as Jack Bao, Olivier Blin, Guido Bolliger, Zhi Da, Kent Daniel, Kewei Hou, Jianfeng Hu, Ron Kaniel, Neil Pearson, M. Fabricio Perez, Luis Goncalves-Pinto, Maureen O{\textquoteright}Hara, Norman Seeger, and Sheridan Titman as well as seminar participants at Bayes Business School, Chinese University of Hong Kong, Indian School of Business Hyderabad, Singapore Management University, Sun Yat-sen University, Unigestion, and Vrije University Amsterdam for helpful discussions and useful suggestions. The authors have benefited from the comments of participants at the 2019 Northern Finance Association Annual Meeting, 2019 OptionMetrics Conference, 2019 Taiwan Finance Association Conference, the Second Derivatives and Quantitative Investing Conference at Chinese University of Hong Kong, the 2020 European Finance Association Annual Meeting, and the 2021 American Finance Association Annual Meeting. All errors are their own. Funding Information: History: Accepted by Haoxiang Zhu, finance. Funding: We thank the Canadian Derivatives Institute for financial support. J. Cao and X. Zhan acknowledge generous financial support of the Research Grant Council of the Hong Kong Special Administrative Region, China [Grants GRF 14501720, 14500919]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022. 4379. Publisher Copyright: Copyright: {\textcopyright} 2022 INFORMS.",
year = "2023",
month = mar,
doi = "10.1287/mnsc.2022.4379",
language = "English",
volume = "69",
pages = "1375--1397",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Institute for Operations Research and the Management Sciences",
number = "3",
}