Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260198 
Authors: 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 2016:26
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
In this paper we compute long-term stock return expectations (across the business cycle) for individual firms using information backed out from the credit derivatives market. Our methodology builds on previous theoretical results in the literature on stock return expectations and, empirically, we demonstrate a close relationship between credit-implied stock return expectations and future realized stock returns. We also find stock portfolios selected based on credit-implied stock return forecasts to beat equally- and value-weighted portfolios of the same stocks out-of-sample. Contrary to many other studies, our expectations/predictions are made at the individual stock level rather than at the portfolio level, and no parameter estimations using historical stock price- or credit spread observations are needed.
Subjects: 
stock market
credit default swap
implied volatility
CreditGrades
return expectations
JEL: 
G01
G10
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.