No contagion, only globalization and flight to quality

Brière, Marie; Chapelle, Ariane; Szafarz, Ariane

doi:10.1016/j.jimonfin.2012.03.010

Cited by 101 publications

(60 citation statements)

References 62 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…This difference is consistent with empirical evidence in Brière et al (2012) that cross-country correlations across the IG and HY segment are lower than correlations within the IG and the HY segment.…”

supporting

confidence: 90%

“…Studies that span asset classes such as sovereign bond and equity markets (e.g., Connolly et al, 2005;Yang et al, 2009;Baele et al, 2010;Baker and Wurgler, 2012;and Bansal et al, 2014) or sovereign bond, corporate bond and equity markets at the aggregate level (e.g., Baur and Lucey, 2009;Brière et al, 2012) document the evolution of financial integration and flight to low-risk sovereign bonds in market downturns. At the individual security level, Acharya et al (2013) find higher inter-market correlation between distressed stocks and corporate bonds in times of market downturns; Nieto and Rodriguez (2015) document common factors driving correlation between US stocks and corporate bonds of the same issuer.…”

mentioning

confidence: 99%

See 1 more Smart Citation

Investor sentiment, flight-to-quality, and corporate bond comovement

Bethke

Gehde-Trapp

Kempf

2017

Journal of Banking & Finance

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe examine the dynamics of bond correlation using a broad sample of US corporate bonds, and document that bond correlation varies heavily over time. We attribute this variation in bond correlation to variation in risk factor correlation reflecting time-varying flight-to-quality behavior of investors. We show that risk factor correlation increases when investor sentiment decreases, i.e., corporate bond investors exhibit stronger flight-to-quality when their sentiment is low. Thus, low investor sentiment leads to flightto-quality behavior and, ultimately, high bond correlation.JEL classification: G11; G12

show abstract

supporting

confidence: 90%

mentioning

confidence: 99%

Investor sentiment, flight-to-quality, and corporate bond comovement

Bethke

Gehde-Trapp

Kempf

2017

Journal of Banking & Finance

View full text Add to dashboard Cite

show abstract

“…Correlations are known to be unstable and can change dramatically during crises (Goetzmann et al, 2005, Brière et al, 2012 To gauge the interest of BTC from an investment perspective, we conduct spanning tests, which check whether adding a given asset (here BTC) to a predetermined universe improves investment opportunities. We use the mean-variance spanning test proposed by Huberman and Kandel (1987) and Ferson et al (1993).…”

mentioning

confidence: 99%

Virtual currency, tangible return: Portfolio diversification with bitcoin

Brière

Oosterlinck²,

Szafarz³

2015

J Asset Manag

Self Cite

525

260

View full text Add to dashboard Cite

Bitcoin is a major virtual currency. Using weekly data over the [2010][2011][2012][2013] period, we analyze a Bitcoin investment from the standpoint of a U.S. investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, Bitcoin investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that Bitcoin investment offers significant diversification benefits. We show that the inclusion of even a small proportion of Bitcoins may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run. Results should however be taken with caution as the data may reflect early-stage behavior which may not last in the medium or long run.3

show abstract

“…This result lends evidence to the "flight to quality" hypothesis -when the stock market goes down, investors look for relatively safe investments and switch their holdings from stocks to bonds, and vice versa (see Barksy 1989 andBriere et al 2012). The coefficients of leverage ( 1) to stock and bond returns are -0.02 and 0.49 at the 1% significance level, respectively.…”

Section: Discussionmentioning

confidence: 62%

A contingent claims approach to the determinants of the stock-bond return relationship

Verousis¹,

Chen²

2018

IJBAAF

View full text Add to dashboard Cite

This paper decomposes two effects on a firm's stock and bond returns -the effect of firm's future cash flow and the effect of business risk to study the relationship between the returns of stocks and bonds issued by the same firm. Based on the contingent claims option pricing theory, we employ firm-level data and an event study methodology, and generate hypotheses regarding the stock-bond return relationship. We show that, by controlling for firm's leverage, firm's future cash flow has a simultaneous positive effect on firm's stock and bond returns, whereas firm's business risk has a decoupling effect on stock and bond returns.In addition, we provide evidence for the "flight to quality" hypothesis at a firm-specific level.Our findings complement the literature of stock and bond correlation within a theoretical framework.Keywords: stock-bond relationship; Contingent claims analysis; Option pricing theory; firm performance; business risk JEL Classification: C01; G14; G32 2 IntroductionIn this paper, we investigate the determinants of firms' stock-bond return relationship within the contingent claims analysis (henceforth, CCA) framework. The relationship between stock and bond returns has undergone extensive empirical investigations at both aggregate and firm level. At aggregate level, there is a consensus that the correlation of bonds and stock returns is state dependent and is affected by macroeconomic factors (see Barsky 1989; Cappiello et al. 2006 andLee et al. 2011). At firm level, several studies report a time-varying correlation between stock and bond returns issued by the same firm (see Shane 1994;Hotchkiss and Ronen 2002;Kwan 1996;Alexander et al. 2000 andBao andHou 2013). Our study complements the latter literature by explaining why the correlation between these two sets of asset returns is time-varying using firm fundamentals from an explicit CCA perspective.For this purpose, we re-visit the classic CCA, and use its theoretical underpinnings to infer the effects of a firm's future cash flow and business risk on the firm's stock-bond return relationship. CCA is a generalization of the option pricing theory pioneered by Black and Scholes (1973) and Merton (1973), that has been applied to a wide variety of contingent claims, such as corporate bonds and equities (see Merton 1974, Galai and Masulis, 1976and Koussis and Martzoukos, 2012. In relation to our study, the CCA option pricing model suggests that that holders of risky corporate bonds can be thought of as issuers of call options to the holders of a firm's equity, where the underlying asset is the market value of the firm; the holders of the firm's equity will therefore take the residual of the firm's total asset at maturity. Assuming firm value is irrelevant to firm's capital structure, Merton (1974) indicates that bond returns have a positive relationship with the return of firm assets and a negative relationship with changes in the volatility of firm assets. Galai and Masulis (1976) propose that stock and bond returns are positively rela...

show abstract

No contagion, only globalization and flight to quality

Cited by 101 publications

References 62 publications

Investor sentiment, flight-to-quality, and corporate bond comovement

Investor sentiment, flight-to-quality, and corporate bond comovement

Virtual currency, tangible return: Portfolio diversification with bitcoin

A contingent claims approach to the determinants of the stock-bond return relationship

Contact Info

Product

Resources

About