Limited arbitrage between equity and credit markets

作者：Kapadia Nikunj^*; Pu Xiaoling

来源：Journal of Financial Economics, 2012, 105(3): 542-564.

DOI：10.1016/j.jfineco.2011.10.014

• Limited arbitrage
• Market integration
• Merton model
• Capital structure arbitrage

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).

• 出版日期2012-9