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Empirical studies on the cross-section of corporate bond and stock markets

Jeroen van Zundert
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Jeroen van Zundert: Tilburg University, School of Economics and Management

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Abstract: This dissertation contains five empirical studies on the efficiency of corporate bond and stock markets. In Chapter 2, the pricing of interest rate risk in the stock market is analyzed. Over the long run, 1927 to 2015, the price of bearing interest rate risk is positive as expected, but there is substantial time variation in this premium. Chapter 3 investigates the cross-sectional relation between firm-level stock and corporate bond expected returns. In contrast to theory, a strong negative relation between bond-implied stock returns and realized stock returns is found in the data. In Chapter 4 the role of cross-sectional volatility dispersion in the momentum effect for both stock and corporate bond markets is analyzed. The inclusion of volatility in the construction of the momentum portfolio vastly improves the risk-return profile. Chapter 5 studies the spilling over of past stock returns to future corporate bond returns. There is strong evidence for this momentum spillover effect, especially if systematic returns are removed from the stock momentum signal. Chapter 6 concludes by estimating premiums for the size, low-risk, value and momentum factors in investment grade and high yield corporate bond markets. These factors, well-known in stock markets, also have positive and significant premiums in the corporate bond market.

Date: 2018
Note: Dissertation
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