Comovement between Corporate Bonds & Stocks

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Profile picture of Associate Professor Alexandre Jeanneret

Topic: Understanding the Comovement between Corporate Bonds and Stocks: The Role of Default Risk

Speaker: Alexandre Jeanneret, Singapore Management University

Abstract: We show that default risk is a primary predictor of the cross-sectional and time-series variation of the comovement between corporate bond and stock returns. Bonds of less creditworthy firms behave more like the issuing firms’ stock, thereby increasing the stock-bond comovement. We rationalize this finding with a novel credit-risk model featuring a factor structure and stochastic volatility. The model identifies key forces underlying stock-bond comovement and reproduces the positive predictability with default risk uncovered empirically. Finally, we show that a dynamic trading strategy investing in bonds and stocks of the most creditworthy firms generates high diversification benefits and Sharpe ratios out-of-sample.

Moderator: Kenny Phua, University of Technology Sydney

Date: Wednesday, 23rd March 2022
Time: 12:00pm - 13:00pm (Australian Eastern Daylight Time)
Venue: On campus face-to-face seminar in room CB08.08.002 that will also be streamed via Zoom

Seminar protocols:

  • The webinar will run for 45 minutes, followed by a 15 minute Q&A session.
  • There will be a moderator for each seminar event, who will facilitate communication and resolve any technical issues.
  • Participants can use the chat facility or raise their had to ask questions during the presentation. The moderator will then alert the speaker at the appropriate time and either ask the questions raised or unmute the participant so they can ask the question directly to the presenter.

Co-ordinator: Kenny Phua

Enquiries: Ray Alonso

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Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.