Abstract
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 powerful insight to test market integration. Some variables (e.g., profitability and net issuance) fail to explain bond returns, and for others (e.g., investment and momentum) bond return premia are too large compared with their loadings, or hedge ratios, on equity returns of the same firms. The risk premia of standard factors tend to differ between the two markets. Market integration weakens when noisy investor demand and short-sale impediments are stronger.
| Original language | English |
|---|---|
| Pages (from-to) | 16-34 |
| Number of pages | 19 |
| Journal | Journal of Monetary Economics |
| Volume | 100 |
| DOIs | |
| Publication status | Published - 2018 Dec |
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All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
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Anomalies and market (dis)integration. / Choi, Jaewon; Kim, Yongjun.
In: Journal of Monetary Economics, Vol. 100, 12.2018, p. 16-34.Research output: Contribution to journal › Article
TY - JOUR
T1 - Anomalies and market (dis)integration
AU - Choi, Jaewon
AU - Kim, Yongjun
PY - 2018/12
Y1 - 2018/12
N2 - 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 powerful insight to test market integration. Some variables (e.g., profitability and net issuance) fail to explain bond returns, and for others (e.g., investment and momentum) bond return premia are too large compared with their loadings, or hedge ratios, on equity returns of the same firms. The risk premia of standard factors tend to differ between the two markets. Market integration weakens when noisy investor demand and short-sale impediments are stronger.
AB - 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 powerful insight to test market integration. Some variables (e.g., profitability and net issuance) fail to explain bond returns, and for others (e.g., investment and momentum) bond return premia are too large compared with their loadings, or hedge ratios, on equity returns of the same firms. The risk premia of standard factors tend to differ between the two markets. Market integration weakens when noisy investor demand and short-sale impediments are stronger.
UR - http://www.scopus.com/inward/record.url?scp=85050096076&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85050096076&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2018.06.003
DO - 10.1016/j.jmoneco.2018.06.003
M3 - Article
AN - SCOPUS:85050096076
VL - 100
SP - 16
EP - 34
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
SN - 0304-3932
ER -