Abstract
A measure of heterogeneous beliefs based on the high-frequency credit market information is associated with an increase in the firm's debt issuance and investments and a decrease in the cost of debt the following month. Inferring an elevated credit-market belief as investors' optimistic outlook on firms' prospects predicts future credit returns. Expectations move with the leverage (moneyness) levels and correlate with risk factors. The existence of predictable mean reversion in credit market conditions reinforces these results.
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