Government Bonds and the Cross-Section of Stock Returns

42 Pages Posted: 22 Mar 2009

See all articles by Malcolm P. Baker

Malcolm P. Baker

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

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 9 versions of this paper

Date Written: March 18, 2009

Abstract

We study basic return comovement and predictability patterns in U.S. government bonds and the cross-section of stocks. Government bonds comove most strongly with bond-like stocks, i.e. stocks of large, mature, low-volatility, profitable, dividend-paying firms that are neither high growth nor distressed. Government bonds and bond-like stocks are also copredictable in the sense that time-series variables that predict returns on one asset class also predict returns on the other. In addition to traditional explanations for comovement and copredictability, the evidence is particularly consistent with the hypothesis that fluctuations in investor sentiment affect the demand for both bonds and bond-like stocks relative to the demand for speculative stocks.

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey A., Government Bonds and the Cross-Section of Stock Returns (March 18, 2009). AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1363905 or http://dx.doi.org/10.2139/ssrn.1363905

Malcolm P. Baker (Contact Author)

Harvard Business School ( email )

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

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Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
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212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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