Anomalies and Market (Dis)Integration

48 Pages Posted: 22 Mar 2014 Last revised: 21 Jun 2018

See all articles by Jaewon Choi

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance

Yongjun Kim

University of Seoul

Date Written: March 10, 2018


If equity and corporate bond markets are integrated, risk premia in one market should appear in the other, and their magnitudes should be consistent with each other. We use this insight to examine market integration between equity and corporate bonds in the cross section. Some variables (e.g., profitability and net issuance) that explain equity returns do not explain bond returns, and for others (e.g., investment and momentum) cross-sectional bond returns are too large to be explained by their loadings, or hedge ratios, on equity returns of the same firms. The risk premia of the standard factors estimated using bond returns tend to differ from those estimated using equity returns. We also find that discrepancies in return premia increase when noisy investor demand and short-sale impediments are stronger.

Keywords: Market Integration, Cross-sectional Returns, Corporate Bonds, Investor Sentiment

Suggested Citation

Choi, Jaewon and Kim, Yongjun, Anomalies and Market (Dis)Integration (March 10, 2018). Journal of Monetary Economics, Forthcoming, Available at SSRN: or

Jaewon Choi (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Yongjun Kim

University of Seoul ( email )

Korea, Republic of (South Korea)

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