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Three Essays in Financial Economics: the Interactions of Stocks and Fixed Income Securities Open Access


Other title
Bond-stock correlations
Market efficiency
Type of item
Degree grantor
University of Alberta
Author or creator
Cao, Ning
Supervisor and department
Galvani, Valentina (Economics)
Examining committee member and department
Young, Denise (Economics)
Jithendranathan, Thadavillil (Finance)
Huang, Haifang (Economics)
Choulli, Tahir (Mathematical and Statistical Sciences)
Department of Economics

Date accepted
Graduation date
2017-11:Fall 2017
Doctor of Philosophy
Degree level
This dissertation consists of three essays in the field of financial economics, which examine the interactions of stocks and fixed income securities, at the individual bond level and aggregate market level. The first chapter provides a general introduction for the whole thesis. The second chapter studies asynchronous and contemporaneous links between values of individual stocks and bonds issued by the same firm. These correlations offer indications on how firm-specific information streams between the stock and bond markets. We examine those links using a novel database which contains bonds issued by Canadian firms over three decades. The overall result provides strong evidence of information flows streaming from the stock market to the bond market, and suggests that significant bidirectional information flows were triggered by the 2007 financial crisis. Further, information regarding the mean of firm's value, rather than its volatility, prevails in driving contemporaneous variations in stocks and bonds. The third chapter examines flights from stocks to three types of safe-haven assets: long-term Treasuries, T-Bills, and top-grade corporate bonds. We propose an innovative data-driven approach to identify flight-to-quality, and thus eliminate the exogenous identification of the crisis period. The chapter then examines the role of asset performance, volatility, illiquidity, and monetary policy activities on the flight-to-quality episode. The results indicate that illiquidity shocks appear to diversely affect different types of flights. Monetary policy announcements, both past and contemporaneous, are shown to decrease the incidence of flight-to-quality. In addition, this chapter establishes a strong link between the profitability of the momentum strategy and flight-to-quality. In Chapter 4, we check the robustness of the methodology to identify flight-to-quality proposed in Chapter 3. We find that flight indicators obtained by employing sub-samples, crisis periods or benchmark periods with different numbers of observations are highly correlated with each other. Our flight to long-term Treasuries indicators are robust to inclusion of the two other safe-haven assets. Results based on a series of data simulations with correlation changes of various possible sizes indicate that when a correlation change is about 5 times as large as the benchmark correlation level, our model can identify a flight in 90% of the data simulations. The last chapter concludes.
This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for the purpose of private, scholarly or scientific research. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
Citation for previous publication
Cao, N., Galvani, V. and Gubellini, S., 2017. “Firm-specific stock and bond predictability: New evidence from Canada.” International Review of Economics & Finance, Volume 51, 174-192.

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