The 52-Week High, Downside Risk, and Corporate Bond Returns

Abstract

We show that the 52-week high stock anomaly is a powerful predictor of corporate bond returns. By anchoring the current price to its 52-week high, the price-to-high (PTH) ratio captures the stock market's most pessimistic view on negative productivity shocks experienced by the firm, disproportionately forecasting adverse events such as earnings surprises and credit rating downgrades. A long-short bond strategy based on the PTH signal yields a monthly alpha of 48 bps, reflecting the gradual incorporation of information into bond prices. The strategy is robust across bond types and markets, exhibits especially strong performance during market downturns, and is distinct from bond momentum, stock momentum spillover, and post-earnings-announcement drift (PEAD) effects. Our findings highlight an important equity-credit interaction, offering insights for investors and researchers into risk and inefficiencies within bond markets.

Keywords: JEL Classification: G11, G12, G14, G40 52-Week High, Bond Returns, Stock Momentum, Cross-Market Spillovers, Equity-Credit Integration

JEL Classification: G11, G12, G14, G40