The Impact Of Credit Spreads On The Expected Return Of Stock

In recent years,China's capital market has developed rapidly,and stock financing and bond financing have become the main financing means of the company.However,due to the late start of the bond market and relatively immature development,the researchers' attention to the bond market is not very high.The research on credit spreads is relatively narrow,mainly focusing on the macro level and the influencing factors of the bond market.Credit spreads,as one of the important characteristics of corporate bonds,are also a measure of public debt.This paper studies the impact of corporate bond credit spreads on the expected return of stocks by linking the bond market with the stock market from the micro-level of individual companies.The paper takes 673 listed companies and 1412 corporate bonds from 2011 to 2018 as samples.By using portfolio analysis and Fama-Macbeth cross-section regression analysis,the relationship between credit spreads and expected stock returns is studied.The robustness test was carried out by comparing the results of extreme portfolios and the cross-section regression of sub-samples in Shanghai and Shenzhen stock markets.The empirical results show that:(1)The credit spread has a significant negative impact on the expected return of the stock,indicating that the credit spread does contain relevant information about the future credit risk changes of the company,thus affecting the expected return on stocks.(2)The impact of credit spread on the expected return is more obvious in companies with medium-sized market capitalization,low stock price,low turnover ratio,low institutional ownership and high leverage,that is,investors can achieve greater returns with lower transparency,lower arbitrage costs,or greater financial risk.(3)The impact of credit spreads on stock expected return is greater in the stocks with lower credit spreads,the small company effect is more significant in the firms with higher credit spreads,and the impact of institutional ownership on stock expected return is more obvious in the firms with larger credit spreads.(4)Through the robustness test,both Shanghai and Shenzhen stock markets can find a significant negative correlation between the credit spreads and the expected return.The impact of Shanghai stock market is greater.In addition,the impact of institutional ownership on the expected return on stocks is significantly different between the two markets.