Investor sentiment, flight-to-quality, and corporate bond comovement

Arbeitspapier

We examine the dynamics of bond correlation using a broad sample of US corporate bonds, and document that bond correlation varies heavily over time. We attribute this variation in bond correlation to variation in risk factor correlation reflecting time-varying flight-to-quality behavior of investors. We show that risk factor correlation increases when investor sentiment decreases, i.e., corporate bond investors exhibit stronger flight-to-quality when their sentiment is low. Thus, low investor sentiment leads to flightto- quality behavior and, ultimately, high bond correlation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 13-06 [rev.3]

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: bond correlation ; risk factor correlation ; flight-to-quality ; investor sentiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bethke, Sebastian ; Gehde-Trapp, Monika ; Kempf, Alexander
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/114473
• Last update: 10.03.2025, 11:45 AM CET