Corporate Bonds and Stock Prices: A Coherency Analysis in Europe

Abstract

This paper aims to find a coherent relationship between stock prices and bond yields on the day of issue. We show that stock prices seem to have a weak positive relationship with yields as investors seem to consider the underlying health of a firm before investing their money in either security. This contrasts with earlier research and falls in line with later research. The findings show that one percentage increase in share price on date of issue has the potential to raise yields by 0.20% given the near-zero interest environment of the euro.