Do Stocks Lead Bonds? New Evidence from Corporate Bond Etfs

66 Pages Posted: 27 Aug 2024

See all articles by Hao Jiang

Hao Jiang

Michigan State University - Eli Broad College of Business

Sophia Zhengzi Li

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Yuanyuan Xiao

affiliation not provided to SSRN

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Abstract

This paper studies the dynamic information flows between stocks and corporate bonds.  Using accurately measured returns on corporate bond exchange-traded funds (ETFs), we find that returns on portfolios of bond-issuing firms’ stocks positively predict corporate bond ETF returns, but not vice versa.  Inspired by these findings, we apply the adaptive LASSO to aggregate information from these bond-linked stocks, resulting in a signal with strong predictive power for ETF returns.  By contrast, a randomly formed stock portfolio does not predict the ETF returns.  These results provide fresh evidence on the notion of gradual information diffusion across different asset classes.

Keywords: Market Efficiency, ETF, Stocks, Bonds' Lead-Lag Relationship

Suggested Citation

Jiang, Hao and Li, Sophia Zhengzi and Xiao, Yuanyuan, Do Stocks Lead Bonds? New Evidence from Corporate Bond Etfs. Available at SSRN: https://ssrn.com/abstract=4938752 or http://dx.doi.org/10.2139/ssrn.4938752

Hao Jiang

Michigan State University - Eli Broad College of Business ( email )

632 Bogue St
East Lansing, MI 48824
United States

Sophia Zhengzi Li (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

100 Rockafeller Rd
Piscataway, NJ 08854
United States

HOME PAGE: http://https://sites.google.com/site/szlwebpage/

Yuanyuan Xiao

affiliation not provided to SSRN ( email )

No Address Available

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