Disintegrated Bond and Stock Markets

George Pal & Christian F. Bruusgaard

Student thesis: Master thesis

Abstract

A variety of risk factors that predict the returns of stocks and bonds have been documented in the Asset Pricing literature. This thesis tests the performance of 3-factor models incorporating several of these risk factors. Furthermore, this thesis investigates if risk premia are consistently priced across stocks and bonds, and if there is evidence of market integration between the two asset classes. Specifically, we examine Size, Value, Profitability, Investments, Duration, Yield, and Momentum risk factors. We find that 3- factor models tend to improve upon the CAPM only marginally. Furthermore, our results consistently indicate that bond and equity markets are disintegrated and risk factors inconsistently priced.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages173
SupervisorsPeter Feldh├╝tter