Stocks versus corporate bonds: A cross-sectional puzzle
van Zundert,Jeroen Driessen,Joost
van Zundert,Jeroen
Driessen,Joost
Abstract
We study the cross-sectional relation between stock and corporate bond markets. By correcting credit spreads of corporate bonds for expected default losses and by using equity-bond elasticities, we obtain a firm's expected bond-implied stock return, which we then compare to its realized stock return. We find, surprisingly, a strong negative cross-sectional relation between these expected and realized stock returns. We show that this effect is not simply a restatement of the distress risk puzzle or other well-known anomalies in stock and corporate bond markets. This negative cross-sectional relation is strongest for high-risk firms and for liquid stocks.
Description
Publisher Copyright: © 2022
Date
2022-04
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Cross-market relations, Corporate bond, Stock, Distress risk, Expected stock return, CREDIT RISK, EQUITY, DEFAULT, SPREAD, INFORMATION, LIQUIDITY, DETERMINANTS, EQUILIBRIUM, EFFICIENCY, RETURNS
Citation
van Zundert, J & Driessen, J 2022, 'Stocks versus corporate bonds : A cross-sectional puzzle', Journal of Banking & Finance, vol. 137, 106447. https://doi.org/10.1016/j.jbankfin.2022.106447
License
info:eu-repo/semantics/openAccess