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Short Selling And Cross Section Of Corporate Bond Returns
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Book Synopsis Short Selling and Cross-Section of Corporate Bond Returns by : Stephen E. Christophe
Download or read book Short Selling and Cross-Section of Corporate Bond Returns written by Stephen E. Christophe and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between short selling in the equity market and corporate bond returns. We show that both shorting activity and size of short trades are inversely correlated with contemporaneous bond returns. In addition, firms with heavily shorted shares or large short trade size experience significantly negative future bond returns. Further tests indicate that the relation between short trade size and subsequent bond returns is consistent with stealth trading of short sellers. The impact of both shorting activity and short trade size on bond returns is robust to various controls for risk, liquidity, and other pricing factors. In examining the sources of information in short selling, we find that firms associated with heavy short selling or large short trade size are likely to subsequently experience negative earnings surprises, higher credit risk, and reduced dividends. The overall results support the proposition that short trades in the equity market exert important valuation consequences in the corporate bond market.
Book Synopsis Common Risk Factors in the Cross-Section of Corporate Bond Returns by : Jennie Bai
Download or read book Common Risk Factors in the Cross-Section of Corporate Bond Returns written by Jennie Bai and published by . This book was released on 2018 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the cross-sectional determinants of corporate bond returns and find that downside risk is the strongest predictor of future bond returns. We also introduce common risk factors based on the prevalent risk characteristics of corporate bonds -- downside risk, credit risk, and liquidity risk -- and find that these novel bond factors have economically and statistically significant risk premia that cannot be explained by long-established stock and bond market factors. We show that the newly proposed risk factors outperform all other models considered in the literature in explaining the returns of the industry- and size/maturity-sorted portfolios of corporate bonds.
Book Synopsis Book-to-market, Mispricing, and the Cross-section of Corporate Bond Returns by : Söhnke M. Bartram
Download or read book Book-to-market, Mispricing, and the Cross-section of Corporate Bond Returns written by Söhnke M. Bartram and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A corporate bond’s book value divided by its market price strongly predicts its return from actual transactions occurring at least eight days after observing the signal. Bonds with the 20% highest “bond book-to-market ratios” outperform their lowest quintile counterparts by 3%-4% per year, other things equal. The finding controls for numerous attributes tied to liquidity, default, microstructure, and priced asset risk, including yield, credit spread, structural model equity hedges, bond rating, and maturity. If an efficient markets story explained the 3%-4% spread, we would not observe (as we do) rapid decay in the ratio’s predictive efficacy with implementation delays beyond one month, efficacy across the bond-type spectrum, and an inability of microstructure, factor risk, and bond attributes to account for the anomaly.
Book Synopsis Volatility and the Cross-Section of Corporate Bond Returns by : Kee H. Chung
Download or read book Volatility and the Cross-Section of Corporate Bond Returns written by Kee H. Chung and published by . This book was released on 2018 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the pricing of volatility risk and idiosyncratic volatility in the cross-section of corporate bond returns for the period of 1994-2016. Results show that bonds with high volatility betas have low expected returns and this negative relation appears in all segments of corporate bonds. Further, bonds with high idiosyncratic bond (stock) volatility have high (low) expected returns, and this relation strengthens as ratings decrease. Conventional risk factors and bond/issuer characteristics cannot account for these cross-sectional relations. There is evidence that the effect of idiosyncratic stock volatility on expected bond returns works through the channel of contemporaneous stock returns.
Book Synopsis Short Selling and Price Discovery in Corporate Bonds by : Terrence Hendershott
Download or read book Short Selling and Price Discovery in Corporate Bonds written by Terrence Hendershott and published by . This book was released on 2017 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show short selling in corporate bonds forecasts future bond returns. Short selling predicts bond returns where private information is more likely, in high-yield bonds, particularly after Lehman's collapse. Short selling predicts returns following both high and low past bond returns. This, together with short selling increasing following past buying order imbalances, suggests short sellers trade against price pressures as well as trade on information. Short selling predicts bond returns both in the individual bonds that are shorted and in other bonds by the same issuer. Past stock returns and short selling in stocks predict bond returns, but do not eliminate bond short selling predicting bond returns. Bond short selling does not predict the issuer's stock returns. These results show bond short sellers contribute to efficient bond prices and that short sellers' information flows from stocks to bonds, but not from bonds to stocks.
Book Synopsis Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios! by : Himanshu Verma
Download or read book Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios! written by Himanshu Verma and published by . This book was released on 2020 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine momentum and reversal anomalies in corporate bond returns at the firm-level employing a novel dataset, SoKat Credit, comprising bonds of 323 of the largest and liquid companies over the period from 2002 to 2020. Our study documents significant short-term reversal in the cross-sectional of corporate bond returns concentrated at the one week interval with annualized returns on the zero investment long-short portfolio of 9.9%. We also document company-level momentum spillover effect into corporate bond returns when sorting on past equity returns, that is, our “bond-stock” strategy, which delivers annualized return of 5.0% is statistically significant and robust baring the usual suspects of caveats.
Book Synopsis The CDS-Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns by : Gi H. Kim
Download or read book The CDS-Bond Basis Arbitrage and the Cross Section of Corporate Bond Returns written by Gi H. Kim and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before the existence of CDS. We show that a basis factor, constructed as the return differential between LOW and HIGH quintile basis portfolios, is a superior empirical proxy that captures the new risks. In the cross section of investment grade bond returns, the basis factor carries an annual risk premium of about 3% in normal periods.
Book Synopsis Is There a Risk-Return Tradeoff in the Corporate Bond Market? Time-Series and Cross-Sectional Evidence by : Jennie Bai
Download or read book Is There a Risk-Return Tradeoff in the Corporate Bond Market? Time-Series and Cross-Sectional Evidence written by Jennie Bai and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide time-series and cross-sectional evidence on the significance of a risk-return tradeoff in the corporate bond market. We find a significantly positive intertemporal relation between expected return and risk in the bond market and the time-series predictability is driven by aggregate systematic risk instead of aggregate idiosyncratic risk. We also propose a new measure of systematic risk for corporate bonds and find a positive link between systematic risk and the cross-section of future bond returns. We provide an explanation for the significance of systematic (idiosyncratic) risk based on different investor preferences and informational frictions in the bond (equity) market.
Book Synopsis Investor Sentiment and the Cross-Section of Corporate Bond Returns by : Xu Guo
Download or read book Investor Sentiment and the Cross-Section of Corporate Bond Returns written by Xu Guo and published by . This book was released on 2019 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper constructs an investor sentiment measure at both individual bond and aggregate levels, uncovering the first evidence that investor sentiment has strong cross- sectional predictive power for corporate bond returns. High bond investor sentiment leads to low future returns. A portfolio that longs low sentiment bonds and shorts high sentiment ones generates an average monthly return of 0.87% for top-quality bonds and 1.48% for speculative-grade bonds. The results are robust to controlling for risk factors and bond characteristics. The cross-sectional predictability of bond returns is countercyclical, and the predictability appears to stem from its predictive power on macroeconomic conditions.
Book Synopsis Short Selling, Trading Activity and Volatility in Corporate Bond Market by : Huu Nhan Duong
Download or read book Short Selling, Trading Activity and Volatility in Corporate Bond Market written by Huu Nhan Duong and published by . This book was released on 2018 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the impact of short selling activity on trading activity and price volatility in the U.S corporate bond market. Consistent with prior literature, we find that investors use short selling as a platform to express their difference of opinions. In addition, we find that the positive relation between short selling activity and price volatility becomes weaker during period when investors' expectations tend to be more homogenous such as the Global Financial Crisis (GFC). More importantly, we show that short selling in the corporate bond market is not simply a substitute to equity short selling and option trading for investors to trade negative news and information against the underlying company. On the contrary, it is an independent conduit for investors to express difference of opinions specific to bond.
Book Synopsis News and the Cross-Section of Expected Corporate Bond Returns by : Abhay Abhyankar
Download or read book News and the Cross-Section of Expected Corporate Bond Returns written by Abhay Abhyankar and published by . This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors - innovations about future inflation and innovations about future real interest rates - explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds.
Book Synopsis The cross-section and time-series of stock and bond returns by : Ralph S. J. Koijen
Download or read book The cross-section and time-series of stock and bond returns written by Ralph S. J. Koijen and published by . This book was released on 2010 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose an arbitrage-free stochastic discount factor (SDF) model that jointly prices the cross-section of returns on portfolios of stocks sorted on book-to-market dimension, the cross-section of government bonds sorted by maturity, the dynamics of bond yields, and time series variation in expected stock and bond returns. Its pricing factors are motivated by a decomposition of the pricing kernel into a permanent and a transitory component. Shocks to the transitory component govern the level of the term structure of interest rates and price the cross-section of bond returns. Shocks to the permanent component govern the dividend yield and price the average equity returns. Third, shocks to the relative contribution of the transitory component to the conditional variance of the SDF govern the Cochrane-Piazzesi (2005, CP) factor, a strong predictor of future bond returns. These shocks price the cross-section of book-to-market sorted stock portfolios. Because the CP factor is a strong predictor of economic activity one- to two-years ahead, positive shocks to CP signal improving economic conditions, leading to a positive price of risk. Value stocks are riskier and carry a return premium because they are more exposed to such shocks.
Book Synopsis Anomalies and Market (Dis)Integration by : Jaewon Choi
Download or read book Anomalies and Market (Dis)Integration written by Jaewon Choi and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: If equity and corporate bond markets are integrated, risk premia in one market should appear in the other, and their magnitudes should be consistent with each other. We use this insight to examine market integration between equity and corporate bonds in the cross section. Some variables (e.g., profitability and net issuance) that explain equity returns do not explain bond returns, and for others (e.g., investment and momentum) cross-sectional bond returns are too large to be explained by their loadings, or hedge ratios, on equity returns of the same firms. The risk premia of the standard factors estimated using bond returns tend to differ from those estimated using equity returns. We also find that discrepancies in return premia increase when noisy investor demand and short-sale impediments are stronger.
Book Synopsis Are Stock and Corporate Bond Markets Integrated? Evidence from Expected Returns by : Jeroen van Zundert
Download or read book Are Stock and Corporate Bond Markets Integrated? Evidence from Expected Returns written by Jeroen van Zundert and published by . This book was released on 2017 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the cross-sectional integration of stock and corporate bond markets by comparing a firm's expected stock return, as implied by corporate bond spreads, to its realized stock return. We compute expected corporate bond returns by correcting credit spreads for expected losses due to default, which are then transformed into expected stock returns. We find, surprisingly, a strong negative cross-sectional relation between these expected and realized stock returns over the period 1994-2015. This effect is stronger for firms with higher default risk, as measured by probability of default, leverage or credit rating, and cannot be explained by differences in the pricing of risk factors in stock and bond markets, limits to arbitrage or liquidity premiums.
Book Synopsis Slow Moving Capital by : Mark Mitchell
Download or read book Slow Moving Capital written by Mark Mitchell and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study three cases in which specialized arbitrageurs lost significant amounts of capital and, as a result, became liquidity demanders rather than providers. The effects on security markets were large and persistent: Prices dropped relative to fundamentals and the rebound took months. While multi-strategy hedge funds who were not capital constrained increased their positions, a large fraction of these funds actually acted as net sellers consistent with the view that information barriers within a firm (not just relative to outside investors) can lead to capital constraints for trading desks with mark-to-market losses. Our findings suggest that real world frictions impede arbitrage capital.
Download or read book Asset Pricing written by John H. Cochrane and published by Princeton University Press. This book was released on 2009-04-11 with total page 560 pages. Available in PDF, EPUB and Kindle. Book excerpt: Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea--price equals expected discounted payoff--that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model--consumption based, CAPM, multifactor, term structure, and option pricing--is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.
Book Synopsis Recovery Ratios and Survival Times for Corporate Bonds by : Ivailo Izvorski
Download or read book Recovery Ratios and Survival Times for Corporate Bonds written by Ivailo Izvorski and published by International Monetary Fund. This book was released on 1997-07-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the determinants of the recovery ratios and survival times (time until default) for U. S. corporate bonds. We show that seniority, the type of industry in which the firm operates, and the type of restructuring attempted after default are the major determinants of the cross-sectional distribution of individual bond recovery ratios. On an industry level, physical asset obsolescence, industry growth, and industry concentration are the most important factors. We also analyze survival times for corporate bonds and find that initial time to maturity and the general economic conditions at maturity and default explain a large fraction of the cross-sectional variation of survival times.
