Equity Momentum in European Credits
Posted: 22 Aug 2019 Last revised: 29 May 2020
Date Written: August 19, 2019
Abstract
We investigate the phenomenon that past winners in the stock market are potential future winners in the European bond market. By using a data-set of EUR denominated bonds for the IG and HY market since 2000, we show that the stock market leads the bond market as well as rating changes. Firms with positive (negative) equity momentum have an improving (deteriorating) rating in the future. This leads to the conclusion that an underreaction of the bond market to the firm specific information about changing default risk is a likely source of the spillover effect.
Keywords: corporate bond, spillover, momentum, equity momentum
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation