Endogenous inattention and risk-specific price underreaction in corporate bonds

• 成果类型: Article
• 署名作者: Li, Jiacui
• 署名单位: Utah System of Higher Education; University of Utah
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.09.025
• 发表日期: 2022
• 页码: 595-615
• 关键词: INVESTOR INATTENTION; rational inattention; Price underreaction; Corporate bonds; Credit risk

摘要

Corporate bond prices are slow to respond to default risk and interest rate shocks, as proxied by firm-level stock returns and Treasury returns, respectively. Furthermore, the under-reaction is risk-specific: bonds with better credit quality underreact more to default risk, while those with worse quality underreact more to interest rates. The under-reactions imply substantial out-of-sample return predictability, and investors appear to be leaving too much money on the table. The results are consistent with behavioral inattention models in which investors endogenously allocate more attention to payoff-relevant (or salient) risks, and they are not explained by traditional trading friction mechanisms. (C) 2021 Elsevier B.V. All rights reserved.