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The determinants of corporate bond yields

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Author Info

  • Liu, Sheen
  • Shi, Jian
  • Wang, Junbo
  • Wu, Chunchi

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.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 49 (2009)
Issue (Month): 1 (February)
Pages: 85-109

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Handle: RePEc:eee:quaeco:v:49:y:2009:i:1:p:85-109

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Web page: http://www.elsevier.com/locate/inca/620167

Related research

Keywords: Bond yield Common risk factors Default risk;

References

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  19. Gregory R. Duffee, 1996. "Estimating the price of default risk," Finance and Economics Discussion Series 96-29, Board of Governors of the Federal Reserve System (U.S.).
  20. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
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Cited by:
  1. SHAH, Syed Muhammad Noaman Ahmed & KEBEWAR, mazen, 2013. "US Corporate Bond Yield Spread: A default risk debate," MPRA Paper 44887, University Library of Munich, Germany.

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