The 52-Week High, Downside Risk, and Corporate Bond Returns

62 Pages Posted: 14 May 2024

Date Written: May 13, 2024

Abstract

We show that the 52-week high stock anomaly has substantial predictive power for the cross-section of corporate bond returns, even beyond the spillover effects of traditional stock momentum and post-earnings-announcement drift (PEAD). By anchoring on the 52-week high, the price-to-high (PTH) ratio provides the stock market's strongest perspective on negative productivity shocks and potential downside risk of the firm. Empirically, the PTH ratio is inversely related to credit spreads and disproportionately forecasts negative events, such as negative earnings surprises and ratings downgrades. This information is highly relevant to bondholders. A long-short bond strategy that trades on the 52-week high earns an alpha of 48 bps per month after controlling for typical bond risk factors (38 bps among investment grade firms, 65 bps among junk grade firms). The effect is pervasive and robust among investment grade bonds, liquid bonds, large firms, credit default swaps (CDS), and international markets.

Keywords: 52-Week High, Bond Returns, Stock Momentum, Cross-Market Spillovers, Equity-Credit Integration

JEL Classification: G11, G12, G14, G40

Suggested Citation

Keshavarz, Javad and Sirmans, Stace, The 52-Week High, Downside Risk, and Corporate Bond Returns (May 13, 2024). Available at SSRN: https://ssrn.com/abstract=4826999 or http://dx.doi.org/10.2139/ssrn.4826999

Javad Keshavarz

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

Stace Sirmans (Contact Author)

Auburn University ( email )

Auburn, AL 36849
United States

HOME PAGE: http://www.stacesirmans.com

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