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John Y. Campbell, Glen B. Taksler
NBER Working Paper No. 8961
Issued in May 2002
NBER Program(s): AP
---- Abstract -----
This paper explores the effect of equity volatility on corporate bond yields. Panel data for the late 1990's 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.
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