Essays on corporate bond pricing and insider trading regulation

Chapter 1 studies the empirical pattern of a corporate bond's volatility as a function of the firm's leverage ratio, and it aims to test Merton's contingent claims model for pricing corporate bonds. Cross-sectionally, we find (1) no evidence that either corporate bond volatility or its ratio to stock volatility is significantly positively correlated with a firm's leverage ratio, and (2) weak evidence that a corporate bond's volatility is positively correlated with its duration and negatively correlated with its trading frequency. We also study how a corporate bond's volatility changes over time when the firm's leverage ratio changes.;Chapter 2 extends our empirical tests to a more sophisticated contingent claims model by Leland and Toft. In support of the theoretical model, we find evidence that (1) the effective duration of a corporate bond is much less than its Macaulay duration, (2) the difference between the effective duration and Macaulay duration of a corporate bond is an increasing function of the firm's leverage ratio, and (3) the yield spread change is negatively correlated with the risk-free interest change, especially for high yield bonds. However, we find that intraday high volatility periods are associated with low returns, and such a pattern does not support the theoretical model.;Chapter 3 studies how public disclosure of insiders' trades affects competition among informed insiders in a dynamic Kyle model. Under disclosure, an insider follows a randomized trading strategy to hide his information. While disclosure always improves the market's informational efficiency, its effect on liquidity and insiders' profits depends on the correlation of insiders' signals. With positively correlated signals, disclosure reduces insiders' profits and makes the market more liquid, but the conclusion can be reversed with sufficiently negatively correlated signals. Finally, we also examine how competition affects insiders' trading strategies under disclosure.