Fixed Income Falling Knives Phase Two: Examining the Relationship between Issuer-Specific Bond and Equity Returns
32 Pages Posted: 20 Jun 2008 Last revised: 1 Sep 2009
Date Written: October 1, 2007
Previous research by the Brandes Institute documented the opportunities available by investing in falling knives (securities whose prices have fallen sharply). Now, in new research on this topic, we investigated the relationship between bond and equity prices in this context. Specifically, we looked for evidence of whether a company's stock price before a fixed income falling knife event gave any indication of its subsequent bond prices, or vice versa.
Keywords: fixed income, falling knives, bond, equity, investors, investment, spread widening
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