The Euro Area Corporate Bond Market: Where Do We Stand Since the Introduction of the Euro?

Bondt, Gabe de; Lichtenberger, Jung-Duk

doi:10.1017/s1566752903005172

Cited by 4 publications

(3 citation statements)

References 13 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The European corporate bond market gained momentum in 1999, with the launch of large issues related to the financing of a number of sizeable mergers and acquisitions and has continued to grow thereafter (see deBondt and Lichtenberger (2003)). …”

mentioning

confidence: 99%

Bondholders’ wealth effects in domestic and cross-border bank mergers

Ongena

Penas

2009

Journal of Financial Stability

View full text Add to dashboard Cite

mentioning

confidence: 99%

Bondholders’ wealth effects in domestic and cross-border bank mergers

Ongena

Penas

2009

Journal of Financial Stability

View full text Add to dashboard Cite

“…Reserve Bank of Australia Bulletin (2001) provides an overview of the Australian corporate bond market. Galati and Tsatsaronis (2001) and De Bondt and Lichtenberger (2003) study the transition of the Euro corporate bond market during the introduction of the Euro. the type suggested by Atkeson and Ohanian (2001).…”

Section: Data Descriptionmentioning

confidence: 99%

Essays in Financial Economics

Mitton¹

2019

Research in Finance

View full text Add to dashboard Cite

In the first essay, I study stock price movements during the trading day and find that retail trading activity generates excess intraday volatility. I develop a simple econometric measure which reveals that volatility realized during the trading day is too high to be reconciled with volatility achieved over the entire trading day. High intraday volatility stocks temporarily outperform low intraday volatility stocks by approximately 59 basis points over the next month. This temporary outperformance is due to retail investor price pressure, which I identify using the detailed brokerage dataset of Barber and Odean (2000) as well as a novel time-series dataset obtained from parsing the financial statements of Charles Schwab and E TRADE. The second essay considers how tax-motivated selling generates temporary distortions in stock prices around the turn of the tax year. As investors face the trade-off between selling a temporarily-depressed stock this year and selling next year but delaying tax implications by one year, the magnitude of the stock's price distortion is a function of its cost basis, the capital gains tax rate, and importantly, the interest rate. Each of these components explains variation in US stock returns as well as retail investor selling behavior around the turn of the tax year. Similar results in the UK provide out-of-sample confirmation, as tax and calendar years differ. The third essay develops a real business cycle model with time-varying inflation risk and optimal, but infrequent, capital structure choice. In the model, more volatile inflation or more procyclical inflation leads to quantitatively important increases in credit spreads. Intuitively, this result obtains because inflation persistence generates large uncertainty about the price level at long maturities and because firms cannot adjust their capital structure immediately. Across a panel of six developed economies, credit spreads rise by iii Abstract iv 15 basis points if either inflation volatility or the inflation-stock return correlation increases by one standard deviation. Firms counteract higher debt financing costs by adjusting their capital structure in times of higher inflation uncertainty.

show abstract

“…Reserve Bank of Australia () provides an overview of the Australian corporate bond market. Galati and Tsatsaronis () and De Bondt and Lichtenberger () study euro corporate bonds during the euro introduction.…”

mentioning

confidence: 99%

Inflation Risk in Corporate Bonds

Kang¹,

Pflueger

2015

The Journal of Finance

View full text Add to dashboard Cite

We argue that corporate bond yields reflect fear of debt deflation. Most bonds are nominal, so unexpectedly low inflation raises firms' real leverage and increases defaults. In a real business cycle model with time-varying inflation risk and optimal but infrequent capital structure, more volatile or pro-cyclical inflation leads to quantitatively important increases in corporate -default free yield spreads. Consistent with model predictions, we find in a panel of six developed countries that credit spreads increase by 14 basis points if either inflation volatility or the inflation-stock correlation increases by one standard deviation.Kang: Harvard Business School, Boston MA 02163. hjkang@hbs.edu. Pflueger: University of British Columbia, Vancouver BC V6T 1Z2, Canada. carolin.pflueger@sauder.ubc.ca. We are grateful to an anonymous referee, Shai Bernstein, Josh Coval, Ben Friedman, Josh Gottlieb, Francois Gourio, Robin Greenwood, Robert Hall, Sam Hanson, Stephanie Hurder, Jakub Jurek, Jacob Leshno, Robert Merton, Nick Roussanov, Alp Simsek, Jeremy Stein, Jim Stock, Adi Sunderam, seminar participants at the University of British Columbia, Brown University, the Federal Reserve Board, the Federal Reserve Bank of Chicago, Harvard University, the University of Illinois at Urbana-Champaign, London Business School, the University of Michigan, the University of Rochester, Washington University in St. Louis, the University of Wisconsin-Madison, and the Yale School of Management for helpful comments and suggestions. We are especially grateful to John Campbell, Erik Stafford, and Luis Viceira for invaluable advice and guidance.Bonds in the developed world overwhelmingly carry fixed nominal face values, so real values fluctuate with inflation. When corporate debt is nominal, firms can be driven into default by either a decrease in real cash flows or an increase in real liabilities. The literature has argued that the volatility of real firm values is priced into corporate bond spreads. We find that inflation risk plays at least as large a role in explaining variation in the spread between corporate bond yields and default-free bond yields.Inflation cyclicality -as proxied by the inflation-stock correlation -peaked during the financial crisis, when inflation dropped to extremely low levels. Our results therefore indicate that concerns about debt deflation (Fisher (1933)) and potentially important macroeconomic feedback effects (Bernanke and Gertler (1989), Kiyotaki and Moore (1997)) are of renewed relevance today.Inflation risk can increase credit spreads in two ways. First, more volatile inflation increases the ex ante probability that firms will default due to high real liabilities. Second, when inflation and real cash flows are highly correlated, low real cash flows and high real liabilities tend to hit firms at the same time, increasing default rates and real investor losses. In this second case, higher credit spreads reflect higher expected credit losses and a higher risk premium due to the greater concentration of ...

show abstract

The Euro Area Corporate Bond Market: Where Do We Stand Since the Introduction of the Euro?

Cited by 4 publications

References 13 publications

Bondholders’ wealth effects in domestic and cross-border bank mergers

Bondholders’ wealth effects in domestic and cross-border bank mergers

Essays in Financial Economics

Inflation Risk in Corporate Bonds

Contact Info

Product

Resources

About