Abstract
If equity and corporate bond markets are integrated, risk premia in one market should appear in the other, and their magnitudes should be consistent with each other. We use this insight to examine the cross section of equity and corporate bond returns. Some anomaly variables (e.g., profitability and net issuance) do not predict bond returns, and for others bond returns are too large compared with loadings on corresponding equity and standard risk factors. Factor risk premia in these markets tend to differ. These discrepancies in return premia widen with noisy investor demand and short-sale impediments, thus suggesting potential market segmentation.
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