Same Firm, Different Betas

38 Pages Posted: 24 Apr 2019 Last revised: 13 Nov 2019

See all articles by Ryan Lewis

Ryan Lewis

University of Colorado, Boulder

Date Written: May 7, 2019


Models of integrated asset markets predict that the debt and equity of the same firm have similar exposure to systematic risk. However, controlling for default probability, firms with a higher proportion of asset level systematic risk do not have commensurately higher spreads on either their vanilla bonds or synthetic bonds derived from option prices. More, the equity and debt of a firm do not share correlated factor exposures or expected returns as predicted in this class of models. In line with extent empirical asset pricing research, systematic risk proportion does explain credit spreads when estimated from a firm's bond returns. These results do not appear to be driven by differential exposure to volatility shocks and support a segmented markets approach to pricing a firm's securities.

Keywords: Credit Spreads, Systematic Risk, Empirical Asset Pricing, Segmented Markets

JEL Classification: G10, G12

Suggested Citation

Lewis, Ryan, Same Firm, Different Betas (May 7, 2019). Available at SSRN: or

Ryan Lewis (Contact Author)

University of Colorado, Boulder ( email )

Boulder, CO 80309-0419
United States

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