The Joint Behavior of Credit Spreads, Stock Optionsand Equity Returns when Investors Disagree

We study how the interaction of agents with different beliefs about a firm’s future cash flows determines the jointbehavior of credit spreads, option implied volatilities, and stock returns. Beliefs heterogeneity influences the pricing kernelin a way that supports more realistic credit spreads and a co–movement with stock return volatility and option impliedvolatility in line with the empirical evidence.[...]

MoreLess

Year of publication:	2008-08-01
Authors:	Buraschi, Andrea ; Trojani, Fabio ; Vedolin, Andrea
Institutions:	Swiss National Centre of Competence in Research North South <Bern>
Subject:	Volatilität \| Kreditrisiko \| Heterogenität

freely available

Full text |

More access options

Check Google Scholar

In German libraries (KVK)

I need help

I. The Economy with Heterogenous Beliefs
A. The Model
B. Disagreement
C. Investors’ Preferences, Financial Markets and Equilibrium
D. Pricing of Financial Assets
II. Model Predictions
A. Firm Value and Firm Value Volatility
B. Firm Value Risk-Neutral Skewness and Probability of Default
C. Credit Spreads and the Volatility of Stock Returns
D. Price of Equity and the Skewness of Stock Returns
E. The Implied–Volatility Smile
III. The Data Sets
A. Bond Data
B. Difference in Beliefs Index Data
C. Option Data
D. Stock Returns Data
E. Control Variables
IV. Empirical Analysis
A. Corporate Credit Spreads
B. Implied Volatility Smile
C. No–Arbitrage Violations of Single–Factor Models
D. Stock Returns
V. Robustness
A. Idiosyncratic Volatility
B. Measures of Divergence of Opinions
VI. Conclusion
References
Appendix

Persistent link: https://www.econbiz.de/10005868970