Predictions of corporate bond excess returns

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

14 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)123-152
Journal / PublicationJournal of Financial Markets
Volume21
Online published28 Aug 2014
Publication statusPublished - Nov 2014

Abstract

In this paper, we investigate the predictability of corporate bond excess returns using a comprehensive data sample for the period from January 1973 to December 2010. We find that corporate bond returns are more predictable than stock returns, and the predictability tends to be higher for low-grade bonds and short-maturity bonds. A forward rate factor captures substantial variations in expected bond excess returns. Furthermore, liquidity factors and a bond's credit spread have predictive power on corporate bond excess returns. Combining these variables with traditional predictors significantly improves the performance of the predictive model for corporate bond returns.

Research Area(s)

  • Credit spreads, Default premium, Duration, Liquidity, Return predictability, Term premium

Citation Format(s)

Predictions of corporate bond excess returns. / Lin, Hai; Wang, Junbo; Wu, Chunchi.

In: Journal of Financial Markets, Vol. 21, 11.2014, p. 123-152.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review