Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114473
Authors: 
Bethke, Sebastian
Gehde-Trapp, Monika
Kempf, Alexander
Year of Publication: 
2015
Series/Report no.: 
CFR Working Paper 13-06 [rev.3]
Abstract: 
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.
Subjects: 
bond correlation
risk factor correlation
flight-to-quality
investor sentiment
JEL: 
G11
G12
Document Type: 
Working Paper

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