Diversification benefits depend on the correlation between assets. Unfortunately, asset correlation increases when it is most needed. We examine bond correlation using a broad sample of US corporate bonds. We find bond correlation to be higher during the financial crisis in 2008. Increased bond...

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...

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...

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...

We explore the relationship between CDS premia and bond asset swap spreads on the same reference entity. As Duffie (1999) shows, there is a clear theoretical link between CDS premia and bond prices if the two quantities are viewed as a pure measure of credit risk. However, many studies provide...

We develop a reduced-form model that allows us to decompose bond spreads and CDS premia into a pure credit risk component, a pure liquidity component, and a component measuring the relation between credit risk and liquidity. CDS liquidity has important consequences for the bond credit risk and...

We analyze trading opportunities that arise from differences between the bond and the CDS market. By simultaneously entering a position in a CDS contract and the underlying bond, traders can build a default-risk free position that allows them to repeatedly earn the difference between the bond...

We analyze the impact of market frictions on trading volume and liquidity premia for finite maturity assets when investors differ in their investment horizons. In equilibrium, illiquidity spills over from short-term to long-term assets and trading concentrates on assets of intermediate maturity....

We analyze the impact of market frictions on trading volume and liquidity premia of finite maturity assets when investors differ in their investment horizons. In equilibrium, short-horizon investors only invest in short-term assets and illiquidity spills over from short-term to long-term...