Abstract

http://ssrn.com/abstract=1341327
 
 

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The Cross-Section and Time-Series of Stock and Bond Returns


Ralph S. J. Koijen


London Business School - Department of Finance; Centre for Economic Policy Research (CEPR)

Hanno N. Lustig


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh


New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

February 2, 2016

EFA 2009 Bergen Meetings Paper
AFA 2010 Atlanta Meetings Paper

Abstract:     
We show that bond factors which predict future U.S. economic activity at business cycle horizons are priced in the cross-section of U.S. stock returns. High book-to-markets stocks have larger exposures to these bond factors than low book-to-market stocks, because their cash flows are more sensitive to the business cycle. Because of this new nexus between stock and bond markets, a parsimonious three-factor dynamic no-arbitrage model can be used to jointly price book-to-market-sorted portfolios of stocks and maturity-sorted bond portfolios, while reproducing the time-series variation in expected bond returns. The business cycle itself is a priced state variable in stock and bond markets.

Number of Pages in PDF File: 67


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Date posted: February 11, 2009 ; Last revised: February 3, 2016

Suggested Citation

Koijen, Ralph S. J. and Lustig, Hanno N. and Van Nieuwerburgh, Stijn, The Cross-Section and Time-Series of Stock and Bond Returns (February 2, 2016). EFA 2009 Bergen Meetings Paper; AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1341327 or http://dx.doi.org/10.2139/ssrn.1341327

Contact Information

Ralph S. J. Koijen (Contact Author)
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Hanno N. Lustig
Stanford Graduate School of Business ( email )
Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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