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The riskiness of corporate bonds

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  • Marco Taboga

    () (Bank of Italy)

Abstract

When the riskiness of an asset increases, then, arguably, some risk-averse agents that were previously willing to hold on to the asset are no longer willing to do so. Aumann and Serrano (2008) have recently proposed an index of riskiness that helps to make this intuition rigorous. We use their index to analyze the riskiness of corporate bonds and how this can change over time and across rating classes and how it compares to the riskiness of other financial instruments. We find statistically significant evidence that a number of financial and macroeconomic variables can predict time-variation in the riskiness of corporate bonds, including in ways one might not expect. For example, a higher yield-to-maturity lowers riskiness by reducing the frequency and the magnitude of negative holding-period returns.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td09/td730_09/en_td_730_09/en_tema_730.pdf
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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 730.

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Date of creation: Oct 2009
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Handle: RePEc:bdi:wptemi:td_730_09

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Web page: http://www.bancaditalia.it
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Keywords: riskiness; corporate bonds; predictability;

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  1. Gonzalez-Rivera, Gloria & Lee, Tae-Hwy & Yoldas, Emre, 2007. "Optimality of the RiskMetrics VaR model," Finance Research Letters, Elsevier, vol. 4(3), pages 137-145, September.
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