Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?

This paper studies whether the commonly analyzed equity return predictors also predict corporate bond returns. Bond markets do price risk, but are also susceptible to delayed information transmission relative to equities. Firm size and profitability are negatively priced while idiosyncratic volatili...

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Main Authors: Chordia, Tarun, Goyal, Amit, Nozowa, Yoshio, Subrahmanyam, Avanidhar, Tong, Qing
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/4521
https://ink.library.smu.edu.sg/context/lkcsb_research/article/5520/viewcontent/goyal.pdf
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spelling sg-smu-ink.lkcsb_research-55202018-07-13T08:17:47Z Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors? Chordia, Tarun Goyal, Amit Nozowa, Yoshio Subrahmanyam, Avanidhar Tong, Qing This paper studies whether the commonly analyzed equity return predictors also predict corporate bond returns. Bond markets do price risk, but are also susceptible to delayed information transmission relative to equities. Firm size and profitability are negatively priced while idiosyncratic volatility is positively priced, suggesting that large firms, more profitable firms and relatively less volatile firms are more attractive to bond investors, thus requiring lower returns. Consistent with a relatively sophisticated institutional clientele, bonds are efficiently priced in that none of the behaviorally-motivated variables provide profitable trading strategies after accounting for transactions costs, though some risk-based variables continue to do so. 2014-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/4521 https://ink.library.smu.edu.sg/context/lkcsb_research/article/5520/viewcontent/goyal.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Business
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Business
spellingShingle Business
Chordia, Tarun
Goyal, Amit
Nozowa, Yoshio
Subrahmanyam, Avanidhar
Tong, Qing
Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
description This paper studies whether the commonly analyzed equity return predictors also predict corporate bond returns. Bond markets do price risk, but are also susceptible to delayed information transmission relative to equities. Firm size and profitability are negatively priced while idiosyncratic volatility is positively priced, suggesting that large firms, more profitable firms and relatively less volatile firms are more attractive to bond investors, thus requiring lower returns. Consistent with a relatively sophisticated institutional clientele, bonds are efficiently priced in that none of the behaviorally-motivated variables provide profitable trading strategies after accounting for transactions costs, though some risk-based variables continue to do so.
format text
author Chordia, Tarun
Goyal, Amit
Nozowa, Yoshio
Subrahmanyam, Avanidhar
Tong, Qing
author_facet Chordia, Tarun
Goyal, Amit
Nozowa, Yoshio
Subrahmanyam, Avanidhar
Tong, Qing
author_sort Chordia, Tarun
title Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
title_short Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
title_full Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
title_fullStr Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
title_full_unstemmed Is the Cross-Section of Expected Bond Returns Influenced by Equity Return Predictors?
title_sort is the cross-section of expected bond returns influenced by equity return predictors?
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/lkcsb_research/4521
https://ink.library.smu.edu.sg/context/lkcsb_research/article/5520/viewcontent/goyal.pdf
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