Are Stock and Corporate Bond Markets Integrated?

J. van Zundert, Joost Driessen

Research output: Working paperOther research output


This study explores the cross-sectional integration of stock and corporate bond markets by comparing a firm’s expected stock return, as implied by corporate bond spreads, to its realized stock return. We compute expected corporate bond returns by correcting credit spreads for expected losses due to default, which are then transformed into expected stock returns. We find, surprisingly, a strong negative cross-sectional relation between these expected and realized stock returns over the period 1994-2015. This effect is stronger for firms with higher default risk, as measured by probability of default, leverage or credit rating, and cannot be explained by differences in the pricing of risk factors in stock and bond markets, limits to arbitrage or liquidity premiums.
Original languageEnglish
Number of pages60
Publication statusPublished - Nov 2017


  • capital market integration
  • corporate bond
  • stock
  • distress risk
  • expected stock return


Dive into the research topics of 'Are Stock and Corporate Bond Markets Integrated?'. Together they form a unique fingerprint.

Cite this