Predictions of corporate bond excess returns
journal contributionposted on 12.05.2022, 04:15 by Hai LinHai Lin, J Wang, C Wu
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.
Preferred citationLin, H., Wang, J. & Wu, C. (2014). Predictions of corporate bond excess returns. Journal of Financial Markets, 21, 123-152. https://doi.org/10.1016/j.finmar.2014.08.003
Journal titleJournal of Financial Markets
Online publication date28/08/2014
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Return predictabilityDefault premiumTerm premiumDurationCredit spreadsLiquiditySocial SciencesBusiness, FinanceBusiness & EconomicsEXPECTED STOCK RETURNSASSET-ALLOCATION PERSPECTIVEEQUITY PREMIUM PREDICTIONLIQUIDITY RISKDIVIDEND YIELDSMARKET RETURNSBUSINESS-CYCLECROSS-SECTIONDEFAULT RISKPREDICTABILITYFinance