Disagreement, Liquidity, and Price Drifts in the Corporate Bond Market

We document empirical evidence for post-earnings announcement drift (PEAD) in corporate bond prices using transaction data. PEAD is more pronounced for bonds that trade more frequently than those that trade infrequently and also manifests in the credit default swap (CDS) market, rejecting the idea that illiquidity generates drifts in pricing. We explain this puzzling positive link between PEAD and liquidity using a stylized model where investors agree to disagree. Empirical evidence supports the hypothesis that disagreement explains both observed price drift and increased trading volumes.