Bethke, Sebastian, Gehde-Trapp, Monika and Kempf, Alexander (2017). Investor sentiment, flight-to-quality, and corporate bond comovement. J. Bank Financ., 82. S. 112 - 133. AMSTERDAM: ELSEVIER SCIENCE BV. ISSN 1872-6372

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Abstract

We 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 worsens, i.e., corporate bond investors exhibit stronger flight-to-quality when their sentiment is bad. Thus, bad investor sentiment leads to flight to-quality behavior and, ultimately, high bond correlation. Very good sentiment, in contrast, can cause risk factor correlation and bond correlation to be negative. (C) 2017 Elsevier B.V. All rights reserved.

Item Type: Journal Article
Creators:
CreatorsEmailORCIDORCID Put Code
Bethke, SebastianUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Gehde-Trapp, MonikaUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
Kempf, AlexanderUNSPECIFIEDUNSPECIFIEDUNSPECIFIED
URN: urn:nbn:de:hbz:38-220251
DOI: 10.1016/j.jbankfin.2017.02.007
Journal or Publication Title: J. Bank Financ.
Volume: 82
Page Range: S. 112 - 133
Date: 2017
Publisher: ELSEVIER SCIENCE BV
Place of Publication: AMSTERDAM
ISSN: 1872-6372
Language: English
Faculty: Unspecified
Divisions: Unspecified
Subjects: no entry
Uncontrolled Keywords:
KeywordsLanguage
CROSS-SECTION; IDIOSYNCRATIC VOLATILITY; LIQUIDITY EVIDENCE; TIME-VARIATION; TERM STRUCTURE; YIELD SPREADS; DEFAULT RISK; STOCK; RETURNS; INTEGRATIONMultiple languages
Business, Finance; EconomicsMultiple languages
Refereed: Yes
URI: http://kups.ub.uni-koeln.de/id/eprint/22025

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