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Common Factors in the Performance of European Corporate Bonds – Evidence before and after the Financial Crisis

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  • Wolfgang Aussenegg
  • Lukas Goetz
  • Ranko Jelic

Abstract

We examine monthly excess returns for 23 Euro†denominated corporate bond indices and propose a new specification for bond asset pricing models. Specifically, we separate level and slope components of term and default risk factors and examine liquidity risk. Our results suggest that level and slope risk factors, derived from complete interest rate and default spread term structures, significantly improve the explanatory power of the Fama and French (1993) 2†factor model. We also demonstrate different sensitivities of risk factors before and after recent financial crisis. The results are robust to calendar seasonality and the consideration of equity market returns.

Suggested Citation

  • Wolfgang Aussenegg & Lukas Goetz & Ranko Jelic, 2015. "Common Factors in the Performance of European Corporate Bonds – Evidence before and after the Financial Crisis," European Financial Management, European Financial Management Association, vol. 21(2), pages 265-308, March.
    • Handle: RePEc:bla:eufman:v:21:y:2015:i:2:p:265-308
    DOI: 10.1111/j.1468-036X.2013.12009.x
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    Cited by:

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    2. Jelic, Ranko & Zeng, Yiming & Karouzakis, Nikolaos, 2023. "Foreign-law premium for European high-yield corporate bonds," Finance Research Letters, Elsevier, vol. 52(C).
    3. Benjamin Hippert & André Uhde & Sascha Tobias Wengerek, 2019. "Portfolio benefits of adding corporate credit default swap indices: evidence from North America and Europe," Review of Derivatives Research, Springer, vol. 22(2), pages 203-259, July.
    4. Bethke, Sebastian & Gehde-Trapp, Monika & Kempf, Alexander, 2017. "Investor sentiment, flight-to-quality, and corporate bond comovement," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 112-132.
    5. Joshua Traut, 2023. "What we know about the low-risk anomaly: a literature review," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(3), pages 297-324, September.
    6. Bethke, Sebastian & Gehde-Trapp, Monika & Kempf, Alexander, 2015. "Investor sentiment, flight-to-quality, and corporate bond comovement," CFR Working Papers 13-06 [rev.3], University of Cologne, Centre for Financial Research (CFR).

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