The determinants of corporate bond yields

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

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)85-109
Journal / PublicationQuarterly Review of Economics and Finance
Volume49
Issue number1
Publication statusPublished - Feb 2009

Abstract

Previous studies have found that common factors explain a high proportion of corporate bond yields. In this paper, we test whether there is a systematic risk premium beyond that implied by a risk-neutral term structure model. We propose a reduced-form term structure model that incorporates both default and tax effects. After controlling the effects of personal taxes and default risk, empirical tests show that at least two of the Fama-French factors are important for corporate bond yields. Our results suggest that term structure models should incorporate aggregate common risk factors in order to better explain the dynamics of corporate bond yields. © 2007 The Board of Trustees of the University of Illinois.

Research Area(s)

  • Bond yield, Common risk factors, Default risk

Citation Format(s)

The determinants of corporate bond yields. / Liu, Sheen; Shi, Jian; Wang, Junbo et al.
In: Quarterly Review of Economics and Finance, Vol. 49, No. 1, 02.2009, p. 85-109.

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