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Sebastian Bethke

is working as a research assistant and PhD student in finance at the University of Cologne. He has studied Financial Mathematics at the University of Cologne. His research interests include empirical finance, especially credit and liquidity risk in corporate bond markets.


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The Correlation Puzzle: The Interaction of Bond and Risk Correlation

In our paper we examine bond correlation using a broad sample of U.S. corporate bonds. We find bond correlation to be higher during the financial crisis in 2008. Increased bond correlation results from higher correlation between corporate bond risk factors. Risk factor correlation increases when investor sentiment worsens. This suggests that corporate bond investors change their perception of risk factors. This leads to higher risk factor correlation and finally higher bond correlation.

Last modified: 2018.11.30.