| Chapter 1 explores the effect of equity volatility on corporate bond yields.{09}Panel data for the late 1990's show that idiosyncratic firm-level volatility can explain as much cross-sectional variation in yields as can credit ratings. This finding, together with the upward trend in idiosyncratic equity volatility documented by Campbell, Lettau, Malkiel, and Xu (2001), helps to explain recent increases in corporate bond yields.; Chapter 2 extends a growing literature that suggests that the purchase and sale of stock by corporate insiders predicts future returns on equities. Using transactions data between 1995 and 1999, I show that insider trading in stocks helps to predict future returns on a firm's debt. Although weaker than for equities, this effect is strongest for small firms and firms with high yield credit ratings.; Chapter 3 exposes a data anomaly in convertible bond trades from the insurance industry. Using insurance industry data between 1995 and 1999, this chapter finds arbitrage opportunities in 11 percent of convertible bond transactions. Industry-specific reporting mechanisms diminish the apparent profits. An informal examination of quoted prices in 2001 data fails to replicate the results.; Chapter 4 addresses the futures market for crude oil. Many of the world's largest oil producers have huge exposure to changes in the price of oil. Despite clear benefits of insuring against this risk, oil producers do little, through participation in futures markets or by designing fixed-price forward contracts, to hedge it. We argue that the moral hazard of oil producers with market power explains this puzzle. |
