Limited arbitrage between equity and credit markets

• 成果类型: Article
• 署名作者: Kapadia, Nikunj; Pu, Xiaoling
• 署名单位: University of Massachusetts System; University of Massachusetts Amherst; University System of Ohio; Kent State University; Kent State University Kent; Kent State University Salem
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.10.014
• 发表日期: 2012
• 页码: 542-564
• 关键词: Limited arbitrage; market integration; Merton model; Capital structure arbitrage

摘要

We document that short-horizon pricing discrepancies across firms' equity and credit markets are common and that an economically significant proportion of these are anomalous, indicating a lack of integration between the two markets. Proposing a statistical measure of market integration, we investigate whether equity-credit market integration is related to impediments to arbitrage. We find that time variation in integration across a firm's equity and credit markets is related to firm-specific impediments to arbitrage such as liquidity in equity and credit markets and idiosyncratic risk. Our evidence provides a potential resolution to the puzzle of why Merton model hedge ratios match empirically observed stock-bond elasticities (Schaefer and Strebulaev, 2008) and yet the model is limited in its ability to explain the integration between equity and credit markets (Collin-Dufresne, Goldstein, and Martin, 2001). (C) 2012 Elsevier B.V. All rights reserved.