Taking advantage of recently augmented corporate bond transaction data, we examine the pricing implications of informed trading in corporate bonds and its ability to predict corporate defaults. We find that microstructure measures of information asymmetry seem to capture adverse selection in...

We develop a model to predict bankruptcies, exploiting that negative book equity is a strong indicator of financial distress. Accordingly, our key predictor of bankruptcy is the probability that future losses will deplete a firm's book equity. To calculate this probability, we use earnings...