Equity Volatility and Corporate Bond Yields
47 Pages Posted: 20 Feb 2002
Date Written: February 2002
This paper explores the effect of equity volatility on corporate bond yields. Panel data for the late 1990's show that idiosyncratic firm-level volatility can explain as much cross-sectional variation in yields as can credit ratings. This finding, together with the upward trend in idiosyncratic equity volatility documented by Campbell, Lettau, Malkiel, and Xu (2001), helps to explain recent increases in corporate bond yields.
Keywords: Corporate bonds, equity volatility
JEL Classification: G12
Suggested Citation: Suggested Citation