Aggregate Earnings and Corporate Bond Markets

Abstract:     
I show that aggregate earnings changes are negatively related to investment-grade corporate bond market returns and positively related to high-yield corporate bond market returns. These results suggest that aggregate earnings move together with cash flows and with discount rates. The aggregate earnings-returns relation is lower for high-rated and long-term bonds. Further, the relation between aggregate earnings changes and corporate bond market returns is mainly driven by the information contained in aggregate cash flows. This latter finding provides evidence of differential pricing of information by the corporate bond and stock markets.

Number of Pages in PDF File: 31

Keywords: Aggregate earnings, Corporate bond market, Credit rating, Maturity

JEL Classification: E10, G12, G14, M41

working papers series