Stock Market Returns Predict Future Corporate Bond Performance, Study Finds.
Corporate bond market returns can be predicted by past stock market returns, especially for high-yield bonds. There is significant serial and cross-serial dependence in daily investment-grade and high-yield bond returns. The relationship between stock and bond returns is stronger for high-yield bonds. However, stock returns are not predicted by past bond returns. These findings hold across different model specifications and test methods, providing insights for modeling defaultable bonds.