Publications
Publications
- June 2012
- Review of Asset Pricing Studies
Comovement and Predictability Relationships Between Bonds and the Cross-Section of Stocks
By: Malcolm Baker and Jeffrey Wurgler
Abstract
Government bonds comove more strongly with bond-like stocks: stocks of large, mature, low-volatility, profitable, dividend-paying firms that are neither high growth nor distressed. Variables derived from the yield curve that are already known to predict returns on bonds also predict returns on bond-like stocks; investor sentiment, a predictor of the cross section of stock returns, also predicts excess bond returns. These relationships remain in place even when bonds and stocks become "decoupled" at the index level. They are driven by a combination of effects including correlations between real cash flows on bonds and bond-like stocks, correlations between their risk-based return premia, and periodic flights to quality.
Keywords
Relationships; Bonds; Stocks; Investment Return; Cash Flow; Quality; Risk And Uncertainty; Forecasting And Prediction; Profit
Citation
Baker, Malcolm, and Jeffrey Wurgler. "Comovement and Predictability Relationships Between Bonds and the Cross-Section of Stocks." Review of Asset Pricing Studies 2, no. 1 (June 2012): 57–87.
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