Abstract
AbstractWe study firms' return and volatility connectedness in the stock and corporate bond markets. Our approach to capturing firm‐specific return and volatility time series in the corporate bond market is based on a repeat‐sales index at the firm level. Measuring the pairwise connectedness of firms, we show that the two markets share similar dynamics in the connectedness of their firms. Firms tend to cluster within their own sectors and ties between firms in the corporate bond market are proportionally weaker. Financial firms play a critical role in the propagation of shocks, but this role differs markedly in the two markets.
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