SSRN Id3470870

Vienna University of Economics and
Business
Institute for Finance, Banking and Insurance
Master Thesis
The Short-Term Eects of Corporate

Bond Index Inclusions on Companies'
Stock Returns
Manuel Wenigwieser, BSc.
supervised by
Assist.Prof. Aleksandra Rze¹nik, Ph.D.
Electronic copy available at: https://ssrn.com/abstract=3470870

Abstract
This thesis examines the impact of corporate bond index inclusions on companies'
share prices during the sample period, which extends from 2013 to 2018. By employing
event study methodology and a cross-sectional analysis, I nd evidence for a signicant
negative price response to inclusions at the index rebalancing date. Furthermore, rms
with quality rated bonds tend to outperform rms with high yield bonds, though all
corporate debt issuers seem to experience negative abnormal returns. I demonstrate
further a small negative correlation of bond size to rms' common equity. Results show
little to no evidence of a signicant dierence for companies with included and not
included bonds.

1 Introduction
Between 2003 and 2018, U.S. corporate outstanding debt more than doubled in value to
$9.2 trillion. In addition, only in the United States, there were total long-term bond issues
in 2017 of $7.5 trillion, compared to a global volume of $21.1 trillion. To put this into
perspective, in the same year new equity issuance had a value of $216 billion in the U.S.
1
and $720 billion globally. These gures support the statement that the corporate bond
market is increasing more in its importance and thereby also gaining in attractiveness to
investors as an asset class. Despite the economic importance of bond indices, the literature
oers only little research dealing with these indices and their impact on companies. In my
thesis, I conduct an event study and look at the eects of corporate bond issuance on stock
returns and what role corporate bond indices play in this context. For this reason, I address
two major research questions: (1) Do corporate bond issues and their inclusions in an index
aect companies' share prices signicantly in the short-term? (2) Are there any bond-specic
characteristics, which contribute to abnormal returns?
Credit rating agencies play a central role in the bond market. Based on the ratings
of the three major providers, Standard & Poor's, Moody's and Fitch, investors, managers
and lenders can gauge the creditworthiness of entities and consequently measure the credit
risk exposure. Credit ratings are predictions of potential credit losses due to the disability
of repaying debt. The range of ratings extend from AAA to D (default). According to
Hamilton, Ou, Kim and Cantor (2007), the average annual global default rate from 1920-
2006 was zero for AAA rated bonds, 3.59% for B and 29.62% for C, which describes the
2
worst rating before default. Despite the size and the attention to the best and better-rated
grade sector, so called junk bonds (also known as high yield bonds) are on the rise in terms
of investment. According to the 2018 Corporate Default and Rating Transition Study of
1 Data according to the Securities Industry and Financial Markets Association (SIFMA). Long-term
bonds are dened here to have a maturity of at least 13 months.
2 For a detailed list of ratings see Table 5 in the appendix.

Standard & Poor's, U.S. speculative-grade issues represent the majority of all U.S. corporate
ratings since 2006. This resulted due to the fact that a growing number of high yield rated
issuers emerge and the risk tolerance among lenders has generally increased. The default
rate of U.S. companies in the speculative-grade sector fell in 2018 to 2.5%, whereas it peaked
at 12% in 2009 during the economic crisis.
My analysis is based on an event study and a multivariate regression, where I test corpo-
rate bond issuance and inclusion for eects on stock returns. For measuring price responses,
I focus on Bloomberg corporate bond benchmark indices during the sample period of 2013-
2018. I apply both bond and company specic factors in the regressions, which may show
an impact on abnormal returns. My main empirical ndings are as follows. First, signi-
cant negative abnormal price response at the index rebalancing date is observable for rms,
which issue high yield rated bonds. This negative price eect also persists at the same date
for included bonds, which are classied as investment grade. Companies with quality rated
bonds tend to outperform rms with worse rated bonds, although this outperformance does
not dier signicantly from zero. I further document a small positive correlation of market
capitalization and a small negative correlation of bond size to companies' returns. By con-
ducting a cross-sectional analysis, I nd evidence for a negative eect of index inclusions and
a positive eect of bond ratings on share prices. Given these ndings, I can document that
corporate bond index inclusions negatively aect common equity of debt issuers.
The remainder of this thesis is structured as follows: Section 2 deals with related literature
and studies. Section 3 provides an overview of corporate bond indices. Section 4 explains the
event study approach and regression methodology. Section 5 describes the characteristics of
the data sample and its sources. Section 6 reports empirical results of companies' abnormal
returns and multivariate regression analysis controlling for factors that may cause a price
reaction. The nal section concludes.

2 Related Literature
Only a few papers have contributed to the research of corporate bond indices, and to the best
of my knowledge, there are no studies in conjunction with stock returns. Chen, Lookman,
Schürho and Seppi (2014) for example examine the eects of a Lehman Brothers corporate
bond index redenition on bond returns. They studied the reclassication of some lower
grade bonds as investment grade due to a rule change. After this change, the ratings of
Fitch were incorporated and bonds with split ratings were no longer labelled as the lower of
Moody's and S&P, but the middle rating of all three agencies, causing a higher number of
better rated bonds in the index. These upgraded bonds show then, after the announcement
date of the rule change in 2005, signicant higher abnormal bond returns than the control
sample. Furthermore, the study shows that upgraded bonds with long maturities (5 years
or longer) clearly outperform (+2,47% cumulative abnormal bond returns after 60 days)
bonds with a maturity of 1-5 years (+1,07% after 60 days). Another paper by Dannhauser
(2017) assesses the eects on bonds due to regulation changes in passive corporate bond
index exchange-traded-funds (ETFs). The iShares iBoxx $ Investment Grade ETF removed
3
a cap on the limited number of fund constituents in June 2009. Due to that removal,
leading to a higher number of bonds in this ETF, evidence shows a decreased bond yield
and an increased price. As a consequence, this reduces the funding costs for companies.
These two papers demonstrate that changes in corporate bond indices and their tracking
funds seem to aect companies, though on rms' bond returns. The aim of this thesis is to
substantiate a potential impact on common equity. Therefore, it is crucial to comprehend
the relationship of individual stock and bond returns in this context. In theory, implying
a frictionless market, relevant information should aect returns of both individual assets
contemporaneously. Kwan (1996) shows that this is not the case. He nds evidence that
the stock market is incorporating new information faster than the bond market. Similar
3 This ETF is administered by Blackrock and tracks the Markit iBoxx $ Liquid Investment Grade Index.

results are reported by Gatfaoui (2009), where she stresses the dierence between popular
U.S. equity and bond indices and observed similarities regarding their respective behaviours
over time. It seems that stock market performance drives systematic corporate bond market
performance. These ndings are in line with Tolikas (2018), who compares Barclays bond
indices with their underlying stock portfolios. He also nds that daily stock returns lead daily
bond returns, yet only for investment grade and high yield indices as well as all individual
ratings except Aaa (best rating) and Ca-D (worst rating). All three papers imply a predictive
power of stock returns for future bond returns to some extent, due to that lag-lead relation.
Furthermore, Tolikas (2018) as well as Hong, Lin and Wu (2012) point out that the predictive
relation is stronger for high yield bonds. On the contrary, they show little to no evidence
that bond returns can explain stock returns. However, in their sample of 55 U.S. high yield
bonds, Hotchkiss and Ronen (2002) nd no evidence that stock returns lead bond returns
in reecting company specic information, even on an intraday basis. They argue that the
bond market seems informationally ecient relative to the market of the underlying shares
because of their similar reaction to certain factors. Given all these evidence, bond and stock
returns tend to behave coincidently to some extent, though the bond market seems to lag in
regard of incorporating new information.
Dathan and Davydenko (2018), display the willingness of companies to issue bonds with a
sucient par value to get included in corporate bond indices. As a result, they get exposed to
increased investments in passive bond mutual funds and ETFs. In addition, after changes to
the eligibility criteria for certain corporate bond indices, rms adapt the size of newly issued
bonds. Consequently, there are a disproportionate number of bonds, which have precisely
the eligibility threshold of popular indices. This study shows that companies are keen to
comply with certain index regulations, in order to get included in an corporate bond index.
Considering these circumstances, it seems that index inclusions are of particular importance
for rms, which are planning to issue a bond.
Sangvinatsos (2009) studies the asset allocation among stocks, treasury bonds and cor-

porate bond indices. He emphasizes the dierence of investment grade and high yield bonds,
where investment grade bonds share similar characteristics with government bonds, whereas
high yield bonds should be seen as a totally unique asset class. The phenomenon of the
predictability of quality bond returns by stock-illiquidity is understood as ight-to-quality
premium, meaning that investors consider investment grade bonds as safe haven in periods
of economic downturn in contrast to equity. This premium is not detected for high yield
bonds, what corroborates the uniqueness of this asset class. What is more, the study nds
signicant utility benets when bond indices are incorporated in a portfolio, as interest rate
risk hedging is done more eciently with lower-rated bond indices. Further research on liq-
uidity premia was made by De Jong and Driessen (2006). In their paper, they treat liquidity
as a priced risk factor, when corporate bonds are exposed to liquidity shocks. They observe
an approximate premium of 0.6% for investment grade bonds and around 1.5% for worse
rated bonds in terms of expected returns. Bredendiek, Ottonello and Valkanov (2016) focus
on optimal corporate bond portfolios with respect to macroeconomic conditions. They found
similar evidence as Sangvinatsos (2009), that in periods of recession or high macroeconomic
uncertainty it is advantageous to invest in low maturity and low credit risk bonds, what the
authors call ight-to-safety strategy in their paper. In the state of economic expansion,
the optimal portfolio is tilted towards long maturity and high yield bonds, which describes a
reaching-for-yield. Regardless of the macroeconomic condition, bonds with high coupons,
small issue size and high past performance tend to perform best in a portfolio. Given these
papers, a clear distinction of investment grade and high yield bonds has been proven. Find-
ings on the optimal asset allocation in certain economic conditions expand the knowledge
about bond investors' behaviour.
Besides studies which deal with the response of bond returns to corporate bond indices
and portfolios, research has been done about how bond characteristics aect companies re-
turns. Pinches and Singleton (1978) examine the eects of bond rating changes to abnormal
returns of rms between 1950 and 1972. They nd that in fact there are abnormally high

returns of companies with increased bond ratings and lower returns for decreased ratings.
The information value was already realized on average 15 to 18 months before the actual
announcement date and therefore fully discounted by the month of the rating change. This
leads to the conclusion that rating agencies reacted in that period with a lagged rating re-
sponse on rms' nancial and operating conditions, which investors already had incorporated
in the stock price. Holthausen and Leftwich (1986) investigate this topic further recently,
albeit they only report signicant negative impacts from rating downgrades (2-day abnormal
average stock return of -2.66%) and small positive, but not signicant eects of upgrades on
share prices. Jorion and Zhang (2007) describe similar results; a strongly signicant negative
cumulative abnormal return of -4.42% from one day before the downgrade to another day
after and a small and insignicant positive price response of +0.31% for upgrades. The dif-
ference of the two latter studies to Pinches and Singleton (1978) manifests in an observation,
which only deals with short-term impacts, what is also in line with my thesis. These studies
support the hypothesis that companies' returns are aected by xed income securities.
Literature shows that on the one hand there are studies examining the impact of corporate
bonds indices on bond returns, on the other hand there are papers about the eects of bond
ratings on stock returns. To the best of my knowledge, no study has been done about
bond indices and their relation to individual rms' returns so far. This thesis contributes
to the literature by closing this gap. Furthermore, following the studies dealing with rating
changes at a later stage of a bond lifecycle, it is to prove if I can report similar ndings in
view of the initial rating of a bond. I use data from prominent major benchmarks in the
corporate debt eld consisting of large bond samples. Hence, it is fairly safe to say that I can
generalize my conclusions. Thus, I provide useful information for both investors and debt
issuing companies.

3 Corporate Bond Indices
When one looks at the corporate bond index universe, one can nd a wide variety of dierent
indices, administered by several well-known nancial institutions, such as Standard & Poor's,
J.P. Morgan, Bank of America Merrill Lynch, FTSE Russell, IHS Markit, Morningstar,
Bloomberg and many more. Considering the distinction of investment grade and high yield,
there are two major providers. According to Dathan and Davydenko (2018), Bloomberg
indices are followed by net assets representing more than 80% of all passive bond funds
invested in investment grade corporate bonds in 2017. Regarding tracking both mutual
and ETFs in the high yield sector, Bloomberg indices have a total market share of about
40% compared to Markit's iBoxx indices with approximately 50% in terms of assets under
management (AUM). In my thesis, I focus solely on indices by Bloomberg.
As of May 2019, the Bloomberg Barclays US Corporate Index (IG index) holds about
5,900 investment grade bonds with a total par value of $5.15 trillion and the average issue
size per bond amounts to approximately $870 million. The Bloomberg Barclays US Corporate
High Yield Index (HY index) has about 1,900 constituents with a total bond volume of $1.23
4
trillion and a mean par value of $650 million per issue. The main dierence between the IG
and the HY index is the rating: in order to be classied as investment grade, bonds have to
be rated Baa3 (rating from Moody's) and BBB- (rating from Standard & Poor's and Fitch),
respectively or higher, whereas high yield bonds must be rated Ba1 and BB+, respectively
or below. For the overall classication, the middle rating of the three rating agencies is used,
when only two ratings are available, the lower is used. If only one agency rates a bond, this
rating is used, when there are no specic bond ratings, the company rating or other sources
are used to determine the credit quality. A further important criterion to become eligible is
the minimum par amount outstanding: to get included in the HY index, a minimum face
value of $150 million per issue is necessary. Since April 1, 2017, the eligibility threshold for
4 See Figure 3 in the appendix for the number of IG and HY index holdings over the sample period.

bonds in the IG index is $300 million, before that it was $250 million. Apart from rating
and size, there are general bond attributes that must be met, in order to get included in one
of the two indices: Issues must be denominated in USD, fully taxable and only xed-rate
coupon bonds, with a nal maturity of at least one year, are eligible. Furthermore, issues,
which are registered at the United States Securities and Exchange Commission (SEC), bonds
exempt from registration and SEC Rule 144A securities with registration rights are included.
Moreover, bullet, puttable, amortizing and callable bonds are admitted for inclusion. Not
included are convertible, equity-type, oating-rate, ination-linked and retail bonds as well as
private placements, structured notes and illiquid securities with no available pricing source.
Both indices are a subset of further Bloomberg benchmark xed income indices, this
means if a bond gets included, it is automatically incorporated in a number of additional
indices. For example, the IG index is a subset of the US Aggregate Index, including also
treasuries and government bonds and the HY index is a component of the Global High-Yield
Index. The US Aggregate itself is a subset of the US Universal and Global Aggregate indices,
5
which are, both together with the Global High-Yield, components of the Multiverse Index.
This index holds about 5,900 bonds with a total volume of $55.5 trillion. Each Bloomberg
index gets rebalanced at month-end. Meaning, if a bond gets issued and settled during the
month, all required security reference information are available and further qualify for a
possible eligibility, it gets included at the last trading day of that month.
The main advantage of being listed in many dierent indices is that every index is tracked
by a number of mutual funds and ETFs. Because it is not possible to hold an index itself,
unless one buys every security separately and rebalances the portfolio every month, these
funds are a great possibility to get a broad exposure to the corporate bond market. According
to the Investment Company Institute (ICI), the total net assets from 17,079 US-registered
investment companies, including primarily mutual funds and ETFs, accounted for $21.4
trillion in 2018, 21% ($4.5 trillion) of this attributed to bond only funds. To further break
5 For an overview of the Bloomberg Benchmark Index universe see Figure 4 in the appendix.

that down, in June 2019 there were 111 bond-ETFs following Bloomberg Bond Indices with
total AUM of roughly $350 billion. The largest in size is the iShares Core U.S. Aggregate
Bond ETF by Blackrock with $63,6 billion AUM, followed by the Vanguard Total Bond
Market ETF with $41,2 billion AUM, both tracking the Bloomberg U.S. Aggregate Bond
Index.6 One must treat ETFs with some reservation, when one wants to hold an exact
and mechanically replicated version of an index. For example, the iShares Aggregate ETF
generally seeks to track the performance of the Underlying Index by investing at least 90%
of its net assets in component securities of its Underlying Index , as its prospectus states.
So, by investing in tracking mutual funds and ETFs, most, but not all of the underlying
bonds are exposed to passive investments.
According to Cici and Gibson (2012), it is no surprise that passive tracking funds are
enjoying more and more popularity. Whereas the stock-selection ability for active equity
funds is well documented in several studies such as Wermers (2000), there is no evidence
consistent with fund managers being able to select both investment grade and high yield
corporate bonds, which outperform bonds with similar characteristics on average. By failing
to identify outperforming bonds, evidence shows that active fund management holds no
benet in the corporate bond sector.
4 Methodology
4.1 Event Study
For analysing potential impacts of corporate bond index inclusions on companies' share
prices, I measure abnormal returns by applying event study methodology. Initially proposed
by Fama, Fisher, Jensen and Roll (1969), where they adopted this event study approach
for the rst time, measuring the eects of stock splits on rms' returns. A more recent
6 Index ETF data retrieved from www.etf.com.

methodology, with several modications and adjustments, was introduced by MacKinlay
(1997). The most essential part of performing an event study is to clearly dene the date
on which the event of interest for the examination takes place. In my thesis, I decide to test
for two dierent events: (1) the last trading day of the month, thus when the bond index is
rebalanced (= inclusion date) and, (2) the date when the bond is actually issued and oered
(= oering date). Subsequently, I dene my event window to test for short-term eects. I
choose a window of 19 days in total, consisting of 3 pre-event days and 15 post-event days.
7
In the event study literature, it is common to use an event window of 3 (-1,+1) or 5 days
(-2,+2) such as Duso, Gugler and Yurtoglu (2010). The most similar paper to my thesis in
terms of event study methodology is Chen et al. (2014), where they examine the impact on
8
bond returns after a redenition of a Lehman Brothers index. In their paper, they use an
event window of -10 to +10 days among a few other windows. The estimation window in
my thesis is set to -50 to -3 days before the event. Although there are several approaches,
for example Cox and Peterson (1994) deploy an estimation window of 100 days, MacKinlay
(1997) uses 250 days and Carow and Kane (2002) suggest 200 days, I choose an estimation
period of 47 days. This is because a company can issue multiple bonds during the sample
period, so 47 trading days roughly reect two calendar months. Therefore, the interference
of other events of a company in the estimation period is minimized. Furthermore, this
sample size represents a sucient size to predict the characteristics accurately in the light
of the Central Limit Theorem, which says that the distribution of a sample normalizes as
9
the sample size increases. I further dene four dierent groups: (1) bonds rated IG and
included in an index, (2) IG bonds not included, (3) HY bonds included and (4) HY bonds
not included.
7 See Holthausen and Leftwich (1986) or MacKinlay (1997).
8 The Lehman Brothers Aggregate Bond Index was overtaken and managed by Bloomberg after their
bankruptcy in 2008, which then became their US Aggregate Bond Index.
9 For example, Hogg, Tanis and Zimmerman (2014) report that a sucient sample size should be "greater
than 25 or 30".
10

The abnormal return is calculated as the dierence between the actual ex-post return
and the normal return of a company over the event window. The normal return is dened
as the expected return without conditioning on the event taking place.
ARi,τ = Ri,τ − E[Ri,τ |Xτ ]
In this equation, ARi,τ represents the abnormal return of company i in time τ , Ri,τ is the
actual return and E[Ri,τ |Xτ ] stands for the normal return. Xτ represents the conditional
expectation for the normal return model. For my event study, I apply the more sophisticated
market model in contrast to the simpler constant mean return model, which supposes the
non-varying mean return of a company during time τ as normal return. By choosing the
market model, Xτ describes the market return in the equation. It is assumed that the
abnormal returns are uncorrelated across all securities. Under the assumption of the ecient
market hypothesis (EMH), the market model predicts a stable linear relationship between
the return of rm i and the market return.
Ri,τ = αi + βi Rm,τ + i,τ
Ri,τ describes the return of company i in time τ , Rm,τ represents the market return, i,τ
is the random disturbance term and αi and βi are the market model's parameters, which
are estimated using the -50 to -3 days window. With all parameters dened, the abnormal
returns can be calculated by regressing the actual return of a company on the return of the
market index over the estimation period and predicting the normal returns then during the
event period. As a representative index depicting the market, I select the Russell 3000 Index
because it reects a broader market than the widely used S&P 500 Index, due to a higher
diversity of constituents in terms of market capitalization in the Russell 3000. Thus, this
index ts my approach more precisely, as medium and small-cap rms are also covered in
11

my sample selection.
In order to accommodate the abnormal returns in the event period, I accumulate these
returns per company. Therefore, I dene CARi (τ1 , τ2 ) as the cumulative abnormal returns
of rm i in the event window from τ1 to τ2 , which is the sum of companies' abnormal returns
ARi,τ .
τ2
X
CARi (τ1 , τ2 ) = ARi,τ
τ =τ1
To examine any impact on stock returns of rms of the four dened groups separately, I dene
CAAR(τ1 , τ2 ) as the cumulative average abnormal returns of group x during the event period
τ1 to τ2 , computed by the average of the cumulative abnormal returns of all companies in a
certain group.
N
1 X
CAARx (τ1 , τ2 ) = CARi (τ1 , τ2 )
N i=1
Considering the null hypothesis, H(0), the mean abnormal performance is zero, so an event
has no impact on companies stock returns if this hypothesis holds. Therefore, I test the
cumulative average abnormal returns for signicance per day and group. If these returns are
statistically dierent from zero, I can reject the null hypothesis and verify the assumptions
of my thesis.
4.2 Regression
Besides the event study, I also employ a multivariate regression to control for both rm and
bond variables that may aect stock return movements. I run the regression separately for
the inclusion and oering date.
Rating IN CL log _IssSize log _M CAP IN D1

CARi,τ = β0 + β1 Xi,τ + β2 Xi,τ + β3 Xi,τ + β4 Xi,τ + β5 Xi,τ
IN D2 IN D3 IN D4 IN D5 IN D6 IN D7
+ β6 Xi,τ + β7 Xi,τ + β8 Xi,τ + β9 Xi,τ + β10 Xi,τ + β11 Xi,τ + i,τ
12

For company i, CAR is the 19-day cumulative abnormal return in the event window. Rating
is a dummy variable, equal to one if a bond of rm i is rated investment grade and zero if
it is rated high yield. IN CL is also a dummy variable, which takes on a value of one if an
issue gets included in a corporate bond index and zero if not. log _IssSize describes the
logarithm of the absolute bond par value at the date of issuance. log _M CAP represents
10
the logarithm of the market capitalization of company i. The residual variables, describing
dierent industry groups, are classied by the four-digit Standard Industrial Classication
(SIC) code. They are dummy variables, equal to one if company i belongs to the respective
industry and zero otherwise:
IN D1: min Mining (SIC codes 10001499)
IN D2: constr Construction (SIC codes 1500-1799)
IN D3: manuf Manufacturing (SIC codes 2000-3999)
IN D4: tranpub Transportation & Public Utilities (SIC codes 4000-4999)
IN D5: trade Wholesale & Retail Trade (SIC codes 5000-5999)
IN D6: f inre Finance, Insurance & Real Estate (SIC codes 6000-6799)
IN D7: serv Services (SIC codes 7000-8999)
Studies, such as Holthausen and Leftwich (1986) and Jorion and Zhang (2007), show
negative abnormal price eects of bond rating downgrades to rms' stock returns and no
eects of rating upgrades. Moreover, for nancial institutions such as insurance companies
and banks, which hold a substantial share in bonds, there are legal regulations limiting the
amount of high yield bond holdings, as reported by Cantor and Packer (1997), Ambrose,
11
Cai and Helwege (2008) or Ellul, Jotikasthira and Lundblad (2011). Given these facts, I
expect a general outperformance of investment grade rated companies over rms with worse
10 Market Capitalizationi,τ = Share Pricei,τ * Shares Outstandingi,τ

11 Schultz (2001) shows that 91% of corporate debt was held by institutions in 1997, thereof 32% by
insurance companies and 10% by private pension funds.
13

rated bonds. Consequently, I also expect the Rating variable to be positive. Dathan and
Davydenko (2018) evince the importance of corporate bond index inclusions for companies,
which adapt the bond size in order to be eligible and consequently have a broad exposure to
investments through an increasing number of ETFs and mutual funds. This further increases
bond liquidity, what aects companies' stock returns positively as reported by Anderson
(2017). Therefore, I expect rms with index included bonds outperform companies with not
included bonds. For this reason, I expect the IN CL factor to be positive.
5 Data Description
For my tests, I use various resources of data. I employ both bond-level and company-level
data. The bond sample consists of bond issues and ratings from the Mergent's Fixed Income
Securities Database (FISD) as well as actual index holdings from Bloomberg. The second
sample consists of daily share prices and other rm-level characteristics from the Center
of Research in Security Prices (CRSP) and Compustat. All data, apart from the index
holdings, are obtained from Wharton Research Data Services (WRDS).

12
5.1 Sample Selection
To study the eects of corporate bond index inclusions, I initially take all bond issues from
FISD. The sample period extends from January 2013 to June 2018, resulting in bonds to-
talling 124,957 from 3,904 dierent issuers. After excluding all government bonds, I match
the index included issues over the International Securities Identication Number (ISIN).
These holdings are acquired from Bloomberg for the Bloomberg Barclays US Corporate Bond
Index (Bloomberg Ticker: LU ACT RU U ), which represents investment grade securities and
the Barclays US Corporate High Yield Bond Index (Ticker: LF 98T RU U ).

12 For further details, please see wrds-web.wharton.upenn.edu.
14

To construct a sample with homogenous and comparable characteristics, I further exclude
all bonds which are denominated in a foreign currency and issues with no oering date.
Likewise, convertible, retail and equity-linked bonds as well as pass through certicates
are eliminated. Additionally, I exclude all xed-income securities with a maturity of less
than one year and a par value below $25 million. I also eliminate issuer rms with more
than 60 issues during the sample period, which amounts approximately to the number of
months in my sample period, because a possible eect per issue cannot be observed then with
signicance. Companies, which went bankrupt as well as defaulted bonds, remain included
to circumvent a possible survivorship bias.
In the next step, I match bond ratings from Moody's, Standard & Poor's and Fitch
from FISD over CUSIP numbers to the individual issues. Where no explicit bond rating
is available, I apply the S&P Domestic Long-Term Issuers Credit Rating from Compustat.
Since bond ratings may change regularly, I take the initial rating at the issue date. Depending
on these ratings, I determine the classication of a bond from an issuer whether as investment
grade (IG) or high yield (HY).
To obtain the issuers' nancial characteristics, I match the issues from FISD to CRSP
over CUSIP identier. In a second step, I link the CRSP data to Compustat via PERMNO
in their linking table. Through these procedures, I can match approximately two thirds of
the bond sample. To screen for mergers and acquisitions in the event window of the issue,
I monitor name and ticker changes of issuers in that period and eliminate them. Some
companies are likely to issue multiple bonds in one month. Therefore, I eliminate all issues
from one issuer, which exhibit both states of inclusion and exclusion in the same month.
Consequently, only events with a distinct state remain; otherwise, a possible eect would be
cancelled out because the corporate bond index only rebalances at the last trading day of
the month. Duplicate bonds, meaning if a rm issues more than one bond at the same time,
are treated as one issue. In order to avoid outliers, I winsorize abnormal returns at the 2.5%
and 97.5% levels.
15

Panel A: Cumulative Abnormal Returns
IG, included IG, not included HY, included HY, not included
Mean -0.060 0.406 -0.587 -0.015
Std. Dev. 4.483 5.117 8.492 8.332
Skewness -0.446 0.435 -0.410 1.740
Kurtosis 12.616 7.816 17.687 18.472
Minimum -56.073 -32.003 -81.525 -40.306
Maximum 36.478 32.601 91.171 72.945
Observations 29,512 5,841 16,999 8,792
Panel B: Number of Bonds

Total Bonds 1,756 409 1,026 586
Thereof:
min 69 21 175 90
constr 6 0 50 22
nre 589 256 81 196
manuf 423 46 297 102
trade 124 5 83 33
serv 128 8 189 69
tranpub 417 73 151 74
Panel C: Bond Issue Size

Mean 623.284 496.716 568.720 369.652
Std Dev. 397.565 544.796 381.159 410.094
Minimum 250 25 150 25
Maximum 4,250 5,695 3,598 5,000
Table 1: This table summarizes bond and rm characteristics in my sample. Panel A reports mean values
and distribution statistics of cumulative abnormal stock returns in percent for the four dened groups. Panel
B displays an array of total bond numbers per group in the sample and a further division into industry groups
as dened in this section. Panel C shows mean values and distribution statistics of bond size in million U.S.
dollars.
16

The nal sample consists of 3,777 bonds from 1,246 dierent issuers. Table 1 displays
summary statistics. In Panel A, the distribution of cumulative abnormal returns for the
dened groups is reported. Considering the means, we can observe negative values for
companies with included bonds and positive values for rms with not included bonds, both
for high yield and investment grade issues. The standard deviation is somewhat larger for
high yield bonds, which is also reected in a higher kurtosis and more extreme minima
and maxima. This leads to the conclusion that the distribution of rms with high yield
bonds is longer and therefore, the tails are fatter. Panel B reports the number of bonds per
group, further broken down by industry groups. It appears that most of the bonds belong to
Finance, Insurance & Real Estate, followed by Manufacturing and Transportation & Public
Utilities. Overall, we can nd higher sample sizes for included bonds. Panel C displays the
distribution of bond size per group in million U.S. dollars. We can observe higher means for
included bonds, which is no surprise, as they are subject to eligibility thresholds, whereas
the sample minimum of not included bonds is set to $ 25 million. An interesting observation
here is the higher maximum and standard deviation of not included bonds over included,
which indicates a more uneven distribution.
6 Empirical Results
6.1 Event Study
6.1.1 Inclusion Date

After calculating cumulative abnormal returns per company, using event study methodology,
I plot the cumulative average abnormal returns (CAAR) for each of group over the 19 day
period (-3,+15), as illustrated in Figure 1.
We can observe here an only marginal eect prior to the inclusion date, showing that the
information on bonds and their ratings is not incorporated in the price of rms before the
17

Abnormal Returns after Inclusion Date
0.5%
0
-0.5%
CAAR
-1%
-1.5%
-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Days
HY, not included IG, not included

HY, included IG, included
Figure 1: This graph diplays the plotted CAAR in percent for the respective groups. The x-axis represents
the days relative to the date of index rebalancing and the y-axis represents the cumulative average abnormal
returns (CAAR).
inclusion takes place. When we look at the gures and their signicance levels in Table 2 in
addition, we can see already a signicant negative price reaction 3 days past the event for
companies with worse rated bonds, even though only at the 10% signicance level at that
time. As assumed, abnormal returns for rms with high yield bonds issued follow a downward
trend and show a more volatile pattern than companies with IG bonds. At the last day of
the observation period, HY not included shows a cumulative decline in abnormal returns of
-1.44% and HY included of -0.6%, both highly signicant. For IG included the downturn
in abnormal returns results in -0.38%, which is statistically signicant at the 5% level,
whereas IG not included experiences virtually no abnormal reaction. It can be concluded
that all groups except companies with IG bonds, which are not included in an index, show
a negative abnormal price reaction after 3-5 days past the date of index rebalancing. The
null hypothesis, that the event has no impact on rms' stock returns, is strongly rejected for
18

Event Day CAAR P>|t| CAAR P>|t| CAAR P>|t| CAAR P>|t|
-3 -0.035 0.809 0.043 0.893 -0.134 0.485 0.109 0.677

-2 -0.055 0.700 -0.037 0.908 -0.083 0.664 -0.211 0.423
-1 -0.046 0.750 0.139 0.662 -0.225 0.240 -0.373 0.156
0 -0.147 0.305 0.179 0.573 -0.143 0.455 -0.256 0.331
1 -0.195 0.174 0.009 0.977 -0.261 0.174 -0.351 0.182
2 -0.216 0.133 -0.131 0.681 -0.333* 0.083 -0.476* 0.070
3 -0.259* 0.072 -0.212 0.504 -0.282 0.141 -0.497* 0.059
4 -0.239* 0.097 -0.217 0.494 -0.338* 0.078 -0.530** 0.044
5 -0.221 0.126 -0.191 0.555 -0.568*** 0.003 -0.762*** 0.004
6 -0.255* 0.077 -0.099 0.760 -0.573*** 0.003 -0.832*** 0.002
7 -0.292** 0.043 -0.067 0.837 -0.630*** 0.001 -0.763*** 0.004
8 -0.327** 0.023 -0.022 0.946 -0.642*** 0.001 -0.954*** 0.000
9 -0.361** 0.012 -0.038 0.907 -0.699*** 0.000 -1.082*** 0.000
10 -0.364** 0.012 -0.030 0.926 -0.772*** 0.000 -1.179*** 0.000
11 -0.366** 0.012 -0.180 0.580 -0.832*** 0.000 -1.185*** 0.000
12 -0.312** 0.033 -0.149 0.648 -0.792*** 0.000 -1.413*** 0.000
13 -0.317** 0.031 -0.084 0.799 -0.721*** 0.000 -1.670*** 0.000
14 -0.371** 0.013 -0.199 0.552 -0.561*** 0.004 -1.553*** 0.000
15 -0.376** 0.012 -0.144 0.669 -0.601*** 0.002 -1.439*** 0.000
*** - signicant at 1% ** - signicant at 5% * - signicant at 10%
Table 2: This table describes the cumulative average abnormal returns (CAAR) in percent and their p-
values of the four groups. Event Day are days relative to the date of corporate bond index rebalancing,
meaning the last trading day of the month (= inclusion date).
these three groups. When we further take Figure 5 in the appendix into account, where the
same CAARs are reported as in Figure 1, but with 95% signicance levels, we can observe
no statistical signicant dierence between included and not included bonds, for both high
yield and investment grade. The considerable larger signicance intervals for not included
bonds are explained by the smaller sample size.
19

6.1.2 Oering Date
Figure 2 displays the plotted CAARs for the specied groups around the date of bond
issuance.
Abnormal Returns after Offering Date

1%
0.5%
CAAR
0
-0.5%
-1%
-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Days
HY, not included IG, not included

HY, included IG, included
Figure 2: This graph diplays the plotted CAAR in percent for the respective groups. The x-axis represents
the days relative to the day of bond oering and the y-axis represents the cumulative average abnormal
returns (CAAR).
Again, there is no evidence for a reaction around the event date. An interesting obser-
vation is that companies with bonds, which are not included, tend to outperform rms with
included bonds. To put things into perspective and considering the signicance levels from
Table 3, only HY included shows a statistically signicant decline in abnormal returns, begin-
ning at day 3 past the oering date and reaching a cumulative abnormal return of -1.05% at
the end of the observation period. Apart from that, there is only one slight positive reaction
of 0.65% at day 15 for IG not included, still only signicant at the 10% level. The ndings,
that the market rather reacts to worse ratings, has already been reported by Holthausen and
20

Event Day CAAR P>|t| CAAR P>|t| CAAR P>|t| CAAR P>|t|
-3 -0.049 0.759 0.075 0.834 0.022 0.920 0.144 0.628

-2 -0.027 0.866 0.023 0.949 0.042 0.844 0.221 0.456
-1 0.006 0.970 0.229 0.526 0.108 0.615 0.135 0.649
0 0.040 0.804 0.273 0.450 0.057 0.793 0.188 0.527
1 0.028 0.862 0.293 0.416 -0.167 0.435 0.155 0.600
2 0.011 0.946 0.368 0.308 -0.278 0.195 -0.067 0.819
3 -0.020 0.901 0.391 0.278 -0.382* 0.075 0.043 0.885
4 -0.026 0.868 0.373 0.300 -0.544** 0.011 -0.024 0.935
5 -0.088 0.587 0.474 0.192 -0.632*** 0.003 -0.072 0.809
6 -0.116 0.477 0.434 0.238 -0.735*** 0.001 -0.280 0.350
7 -0.107 0.514 0.514 0.167 -0.752*** 0.001 -0.236 0.435
8 -0.093 0.572 0.532 0.155 -0.934*** 0.000 -0.171 0.572
9 -0.060 0.716 0.534 0.156 -0.931*** 0.000 -0.040 0.896
10 -0.088 0.595 0.540 0.158 -0.952*** 0.000 -0.163 0.597
11 -0.071 0.672 0.446 0.245 -0.997*** 0.000 -0.112 0.716
12 -0.075 0.651 0.554 0.150 -1.056*** 0.000 -0.033 0.914
13 -0.118 0.483 0.546 0.158 -1.104*** 0.000 0.035 0.911
14 -0.119 0.479 0.613 0.113 -1.005*** 0.000 -0.037 0.904
15 -0.179 0.290 0.653* 0.093 -1.047*** 0.000 -0.007 0.982
Table 3: This table describes the cumulative average abnormal returns (CAAR) and their p-values of the
four groups. Event Day are days relative to the date of bond issuance (= oering date).
Leftwich (1986) as well as Jorion and Zhang (2007). In this case, there is strong evidence
against the null hypothesis only for the HY included group. When we consider Figure 6 from
the appendix, the only dierence we can observe at a 95% signicance level for included and
not included bonds, exists for IG. Though, it only displays at day 15 past the event.
6.2 Cross-Sectional Analysis
Despite testing CAARs of the dened groups diering signicantly from zero over time, I
perform a cross-sectional analysis based on the regression model described in section 4. Table
21

Inclusion Date Oering Date
VARIABLES CAR CAR
Rating 0.124*** 0.253*** 0.125** 0.485*** 0.541*** 0.338***

(0.005) (0.000) (0.048) (0.000) (0.000) (0.000)
INCL -0.412*** 0.159*** 0.308*** -0.560*** -0.518*** -0.421***
(0.000) (0.005) (0.000) (0.000) (0.000) (0.000)
log_IssSize -0.110*** -0.242*** -0.020 0.010
(0.000) (0.000) (0.420) (0.842)
log_MCAP 0.067*** 0.059*** 0.019 -0.051**
(0.002) (0.006) (0.492) (0.038)
min -0.205 -0.169
(0.483) (0.831)
constr -0.135 -0.045
(0.632) (0.955)
nre 0.309 1.211
(0.189) (0.116)
manuf 0.283 0.971
(0.277) (0.215)
trade 0.310 0.981
(0.398) (0.211)
serv 0.310 0.808
(0.675) (0.306)
tranpub 0.254 1.191
(0.246) (0.128)
R-squared 0.003 0.006 0.010 0.002 0.003 0.006

Observations 60,277 60,277 60,277 61,144 61,144 61,144
Table 4: This table reports determinants of cumulative abnormal returns, based on the following cross-
sectional regression:
Rating IN CL log _IssSize log _M CAPIN D1 IN D2 IN D3
CARi,τ = β0 +β1 Xi,τ +β2 Xi,τ +β3 Xi,τ +β4 Xi,τ +β5 Xi,τ +β6 Xi,τ +β7 Xi,τ +
IN D4 IN D5 IN D6 IN D7
β8 Xi,τ + β9 Xi,τ + β10 Xi,τ + β11 Xi,τ + i,τ
where Xi,τ
Rating
is a dummy variable describing the classication of a bond. Xi,τ
IN CL
describes also a dummy
log _IssSize log _M CAP
variable if a bond gets included in an index or not. Xi,τ as well as Xi,τ represent size factors
regarding bond value and companies' market capitalization. The residual factors describe dierent industry
groups, dened as follows: Mining (min), Construction (constr), Finance, Insurance & Real Estate (f inre),
Manufacturing (manuf ), Wholesale & Retail Trade (trade), Services (serv ) and Transportation & Public
Utilities (tranpub). P-values are reported in parentheses.
22

4 illustrates multivariate regressions, which are employed to test for dierent both rm and
bond related factors and how they aect share price movements, separately for the inclusion
and oering date. The dependent variable is dened by CAR. For every event date, I conduct
three dierent regressions by adding several factors.
The results observed display a highly signicant positive relationship in all states for
Rating , meaning if a bond gets rated investment grade, there is a positive impact on com-
panies' abnormal returns and vice versa for high yield bonds, which strongly supports my
initial assumption. An interesting nding is that the IN CL variable is negative at the 1%
signicance level at the oering date, also at the two-factor regression at the inclusion date.
This implies a negative eect on returns if bonds get included in an index. Though, this
relationship reverses at the inclusion date when further variables are added. Regarding the
size of a bond at issuance (log _IssSize), a signicant negative relationship can be found,
but only at the date of inclusion, which denotes that the higher the value of a bond is, the
higher is the negative impact on the stock return of a company. In regard to the size factor
log _M CAP , there is evidence on a positive eect on returns at the inclusion date and a
negative eect at the date of oering, still only when the industry variables are introduced.
When we look at Table 6 in the appendix, we can observe for both dates a small positive
correlation of market capitalization and a small negative correlation of bond size with rms'
returns. The addition of industry group factors shows virtually no evidence in terms of a
response to prices in both examinations. Regarding the relatively low levels of R-squared, it
is no surprise that the applied variables cannot fully explain the variation in the cumulative
abnormal returns, as these equity security movements are mainly driven by other factors
such as value, size, protability and investment as proposed by Fama and French (2015).
This paper is an extension of their famous three-factor-model described by Fama and French
(1993).
23

7 Conclusion
This thesis aims to analyze the impact of bond issuance on companies' stock returns, espe-
cially in the context of corporate bond index inclusions. I provide evidence that companies
who issue non-investment grade bonds which get included in the Bloomberg corporate bond
index, experience highly signicant negative abnormal returns after the date of inclusion as
well as after the date of issuance. This circumstance cannot be observed for not included
HY bonds after both dates, still the same eect is persistent at the inclusion date. I further
demonstrate also a negative price response of rms with included, quality rated bonds, but
only after the date of inclusion in the respective index. There is also little evidence, though
only signicant at the 10% level and persistent at the last day of the observation period,
that included IG bonds tend to aect companies' returns positively after the oering date.
These ndings suggest that equity focused investors take the informational value of bond
rating into account to some extent. In general, all bond issuing companies tend to exhibit
negative abnormal returns, regardless of their credit classication and inclusion. This phe-
nomenon is also reported by Spiess and Aeck-Graves (1999) as well as Butler and Wan
(2010). They nd that debt issuing rms signicantly underperform benchmark rms over
ve years following the issuance, due to liquidity mismatches.
I nd little to no evidence of a signicant dierence for companies with index included
bonds and not included bonds, for both investment grade and high yield ratings. Further-
more, I establish empirical evidence for the relationship of the issuance of quality rated bonds
to positive abnormal stock returns through multivariate regressions. It seems that companies
with investment grade bonds tend to outperform rms with high yield issues, which is in
line with the ndings of Holthausen and Leftwich (1986) and Jorion and Zhang (2007) about
negative share price response to worse rated bonds. Additionally, inclusions in corporate
bond indices seem to have a negative impact on share prices, at least at the oering date. A
potential cause can be that investors are not attracted with the corporate capital structure
24

being not ideal, as a consequence of increased and adapted bond volume for a possible index
inclusion, as reported by Dathan and Davydenko (2018). Further ndings are the small
negative correlation of bond size and the small positive correlation of company size with
returns. A possible explanation herefor could be that investors are skeptical about rms
repaying their debt in case of too large bond issuance, whereas high market capitalization
can be an indicator for investor condence in terms of stability.
Regarding the research questions initially dened and based on the results derived, I con-
clude that there are signicant short-term impacts of corporate bond issuance and inclusion
on share prices, at least for some of the specied groups. In addition, there are bond-specic
characteristics observed, that contribute to companies' stock returns.
25

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28

Appendix
Ratings
Moodys S&P Fitch Classication
Aaa AAA AAA IG
Aa1 AA+ AA+ IG
Aa2 AA AA IG
Aa3 AA- AA- IG
A1 A+ A+ IG
A2 A A IG
A3 A- A- IG
Baa1 BBB+ BBB+ IG
Baa2 BBB BBB IG
Baa3 BBB- BBB- IG
Ba1 BB+ BB+ HY

Ba2 BB BB HY
Ba3 BB- BB- HY
B1 B+ B+ HY
B2 B B HY
B3 B- B- HY
Caa1 CCC+ CCC HY
Caa2 CCC CC HY
Caa3 CCC- HY
Ca CC C HY
C HY
C SD RD HY
D D
Table 5: This table describes the credit ratings of the three dierent rating agencies and their classications.
IG represents the classication as investment grade, whereas HY describes the grading as high yield.
29

6,000
5928 5862
5666 5608
5212
4843
4435
4,000
2147 2253 2208 2111 2045

2,000
2013 1947
0
2012 2013 2014 2015 2016 2017 2018
HY Index Holdings IG Index Holdings
Figure 3: This graph illustrates the number of constituents at year end in the sample period for the
Bloomberg investment grade and high yield index, respectively. The x-axis represents the year and the
y-axis represents the number of holdings.
Figure 4: This graph presents an extract of the Bloomberg Fixed Income Benchmark Index universe.
30

1%
1%
0.5%
0
CAAR
CAAR
−1%
0
−0.5%
−2%
−1%
−3%
−3 −2 −1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 −3 −2 −1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Days Days
IG, not included IG, included HY, not included HY, included
(a) Investment Grade (b) High Yield
Figure 5: This gure displays cumulative average abnormal returns (CAAR) over the observation period
(in days) for rms, divided by the classication of investment grade (a) and high yield (b). The dash line
represents companies with index included bonds, the solid line stands for rms with not included bonds.
The event date is dened here as the date of index rebalancing (= inclusion date). Signicance levels are
reported at 95%.
1.5%
1%
1%
0
CAAR
CAAR
0.5%
−1%
0
−0.5%
−2%
−3 −2 −1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 −3 −2 −1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Days Days
IG, not included IG, included HY, not included HY, included
(a) Investment Grade (b) High Yield
Figure 6: This gure displays cumulative average abnormal returns (CAAR) over the observation period
(in days) for rms, divided by the classication of investment grade (a) and high yield (b). The dash line
represents companies with index included bonds, the solid line stands for rms with not included bonds.
The event date is dened here as the date of the actual bond issuance (= oering date). Signicance levels
are reported at 95%.
31

Pairwise Correlations
Inclusion Date Oering Date
CAR log_MCAP log_IssSize CAR log_MCAP log_IssSize
CAR 1.000 CAR 1.000
log_MCAP 0.017 1.000 log_MCAP 0.008 1.000
log_IssSize -0.015 0.552 1.000 log_IssSize -0.018 0.567 1.000
Table 6: This table reports pairwise correlations between the cumulative abnormal returns (CAR), the
logarithm of the market capitalization (log_MCAP ) and the logarithm of the absolute bond par value
(log_IssSize ).
32

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Vienna University of Economics and

The Short-Term Eects of Corporate

Manuel Wenigwieser, BSc.

Assist.Prof. Aleksandra Rze¹nik, Ph.D.

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characteristics, which contribute to abnormal returns?

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at 12% in 2009 during the economic crisis.

reaction. The nal section concludes.

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substantiate a potential impact on common equity. Therefore, it is crucial to comprehend

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regard of incorporating new information.

for rms, which are planning to issue a bond.

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predictability of quality bond returns by stock-illiquidity is understood as ight-to-quality

similar evidence as Sangvinatsos (2009), that in periods of recession or high macroeconomic

reaching-for-yield. Regardless of the macroeconomic condition, bonds with high coupons,

about bond investors' behaviour.

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management (AUM). In my thesis, I focus solely on indices by Bloomberg.

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means if a bond gets included, it is automatically incorporated in a number of additional

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bonds are exposed to passive investments.

benet in the corporate bond sector.

4.1 Event Study

6 Index ETF data retrieved from www.etf.com.

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of other events of a company in the estimation period is minimized. Furthermore, this

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as the expected return without conditioning on the event taking place.

ARi,τ = Ri,τ − E[Ri,τ |Xτ ]

the return of rm i and the market return.

Ri,τ = αi + βi Rm,τ + i,τ

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the inclusion and oering date.

Rating IN CL log _IssSize log _M CAP IN D1

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industry and zero otherwise:

IN D1: min  Mining (SIC codes 10001499)

IN D2: constr  Construction (SIC codes 1500-1799)

IN D3: manuf  Manufacturing (SIC codes 2000-3999)

IN D4: tranpub  Transportation & Public Utilities (SIC codes 4000-4999)

IN D5: trade  Wholesale & Retail Trade (SIC codes 5000-5999)

IN D7: serv  Services (SIC codes 7000-8999)

10 Market Capitalizationi,τ = Share Pricei,τ * Shares Outstandingi,τ

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included bonds. For this reason, I expect the IN CL factor to be positive.

holdings, are obtained from Wharton Research Data Services (WRDS).

5.1 Sample Selection

the Barclays US Corporate High Yield Bond Index (Ticker: LF 98T RU U ).

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to circumvent a possible survivorship bias.

grade (IG) or high yield (HY).

and 97.5% levels.

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Panel B: Number of Bonds

Panel C: Bond Issue Size

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which indicates a more uneven distribution.

The Short-Term Eects of Corporate

reaction. The nal section concludes.

for rms, which are planning to issue a bond.

predictability of quality bond returns by stock-illiquidity is understood as ight-to-quality

reaching-for-yield. Regardless of the macroeconomic condition, bonds with high coupons,

benet in the corporate bond sector.

the return of rm i and the market return.

Ri,τ = αi + βi Rm,τ + i,τ

the inclusion and oering date.

IN D1: min Mining (SIC codes 10001499)

IN D2: constr Construction (SIC codes 1500-1799)

IN D3: manuf Manufacturing (SIC codes 2000-3999)

IN D4: tranpub Transportation & Public Utilities (SIC codes 4000-4999)

IN D5: trade Wholesale & Retail Trade (SIC codes 5000-5999)

IN D7: serv Services (SIC codes 7000-8999)

in abnormal returns results in -0.38%, which is statistically signicant at the 5% level,

* - signicant at 1% - signicant at 5% * - signicant at 10%

* - signicant at 1% - signicant at 5% * - signicant at 10%

Rating 0.124* 0.253* 0.125 0.485* 0.541* 0.338*

* - signicant at 1% - signicant at 5% * - signicant at 10%

three dierent regressions by adding several factors.

initial assumption. An interesting nding is that the IN CL variable is negative at the 1%

ve years following the issuance, due to liquidity mismatches.

can be an indicator for investor condence in terms of stability.