Government Bonds and the Cross-Section of Stock Returnsâæ

38 Pages Posted: 3 Nov 2008

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Jeffery Wurgler

affiliation not provided to SSRN

Multiple version iconThere are 9 versions of this paper

Date Written: January 2006

Abstract

We document that U.S. government bonds comove more strongly with â¬Sbond-like stocksâ¬?⬠stocks of large, mature, low-volatility, profitable, dividend-paying firms that are neither high growth nor distressed. This pattern may be caused by common shocks to real cash flows, rationally required returns, or flights to quality in which drops in investor sentiment increase the demand for both government bonds and bond-like stocks. Consistent with both the required returns and sentiment channels, we find a common predictable component in bonds and bondlikestocks. Consistent with the sentiment channel, we find that bonds and bond-like stocks comove with inflows into government bond and conservative stock mutual funds.

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffery, Government Bonds and the Cross-Section of Stock Returnsâæ (January 2006). NYU Working Paper No. FIN-05-040, Available at SSRN: https://ssrn.com/abstract=1294181

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffery Wurgler

affiliation not provided to SSRN

No Address Available

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