Volatility and the cross-section of corporate bond returns

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

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Detail(s)

Original languageEnglish
Pages (from-to)397-417
Journal / PublicationJournal of Financial Economics
Volume133
Issue number2
Online published8 Feb 2019
Publication statusPublished - Aug 2019

Abstract

This paper examines the pricing of volatility risk and idiosyncratic volatility in the cross-section of corporate bond returns for the period of 1994–2016. Results show that bonds with high volatility betas have low expected returns, and this negative relation appears in all segments of corporate bonds. Further, bonds with high idiosyncratic bond (stock) volatility have high (low) expected returns, and this relation strengthens as ratings decrease. Conventional risk factors and bond/issuer characteristics cannot account for these cross-sectional relations. There is evidence that the effect of idiosyncratic stock volatility on expected bond returns works through the channel of contemporaneous stock returns.

Research Area(s)

  • Aggregate volatility risk, Corporate bond pricing, Default risk, Idiosyncratic risk, Ratings

Citation Format(s)

Volatility and the cross-section of corporate bond returns. / Chung, Kee H.; Wang, Junbo; Wu, Chunchi.

In: Journal of Financial Economics, Vol. 133, No. 2, 08.2019, p. 397-417.

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