The Cross-Section and Time Series of Stock and Bond Returns

Ralph S. J. Koijen, Hanno Lustig and Stijn Van Nieuwerburgh
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Ralph S. J. Koijen: NYU
Hanno Lustig: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We show that bond factors, which predict future U.S. economic activity at business cycle horizons, are priced in the cross-section of U.S. stock returns. High book-to-market stocks have larger exposures to these bond factors than low book-to-market stocks, because their cash flows are more sensitive to the business cycle. Because of this new nexus between stock and bond markets, a parsimonious three-factor dynamic no-arbitrage model can be used to jointly price book-to-market-sorted portfolios of stocks and maturity-sorted bond portfolios, while reproducing the time-series variation in expected bond returns. The business cycle itself is a priced state variable in stock and bond markets.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2017-04
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Citations: View citations in EconPapers (51)

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Related works:
Journal Article: The cross-section and time series of stock and bond returns (2017)
Working Paper: The Cross-Section and Time-Series of Stock and Bond Returns (2012)
Working Paper: The Cross-Section and Time-Series of Stock and Bond Returns (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3518

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