Relations between Corporate Bonds, Treasuries and the Equity Market: Evidences from Daily Options Adjusted Credit Spreads

29 Pages Posted: 1 May 2006

See all articles by Anthony Miloudi

Anthony Miloudi

affiliation not provided to SSRN

Franck Moraux

Université de Rennes I and CREM

Date Written: January 2005

Abstract

This paper studies the complex relations existing between corporate bonds, treasuries and the equity market. It provides evidences that robust equilibrium relations exist between investment and speculative credit spreads indexes and the other markets. The equilibrium elasticity of the credit spreads to the stock market is function of the credit risk: the lower the rating, the higher the sensitivity. Determinants of credit spread returns are then explored. It is found that the one-day lagged deviation from the equilibrium relations has only a limited effect. This result weakens its importance on the continuous rebalancing of credit portfolios.

Keywords: Credit spreads, equity market, long run relation, short term dynamics

JEL Classification: G32, G12, G14

Suggested Citation

Miloudi, Anthony and Moraux, Franck, Relations between Corporate Bonds, Treasuries and the Equity Market: Evidences from Daily Options Adjusted Credit Spreads (January 2005). Available at SSRN: https://ssrn.com/abstract=899068 or http://dx.doi.org/10.2139/ssrn.899068

Anthony Miloudi (Contact Author)

affiliation not provided to SSRN

Franck Moraux

Université de Rennes I and CREM ( email )

IAE de Rennes
11, rue Jean Macé
Rennes, 35000
France
+33 (0)2 23 23 78 08 (Phone)
+33 (0)2 23 23 78 00 (Fax)

HOME PAGE: http://perso.univ-rennes1.fr/franck.moraux/

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