Equity Volatility and Corporate Bond Yields
by John Y. Campbell of Harvard University, and
Abstract: This paper explores the effect of equity volatility on corporate bond yields. Panel data for the late 1990s show that idiosyncratic firm-level volatility can explain as much cross-sectional variation in yields as can credit ratings. This finding, together with the upward trend in idiosyncratic equity volatility documented by Campbell, Lettau, Malkiel and Xu (2001), helps to explain recent increases in corporate bond yields.
Keywords: Corporate bonds, equity volatility, idiosyncratic volatility.
Published in: Journal of Finance, Vol. 58, No. 6, (December 2003), pp. 2321-2350.