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Returns and Volatility of Low-Grade Bonds: 1977-1989

  • Blume, Marshall E
  • Keim, Donald B
  • Patel, Sandeep A

This paper examines the risks and returns of long-term low-grade bonds for the period 1977-89. The authors find (1) low-grade bonds realized higher returns than higher-grade bonds and lower returns than common stocks, and low-grade bonds exhibited less volatility than higher-grade bonds due to their call features and high coupons; (2) there is no relation between the age of low-grade bonds and their relaxed returns; cyclical factors explain much of the observed reaction between default rates and bond age; and (3) low-grade bonds behave like both bonds and stocks. Despite this complexity there is no evidence that low-grade bonds are systematically over- or under-priced. Copyright 1991 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 46 (1991)
Issue (Month): 1 (March)
Pages: 49-74

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Handle: RePEc:bla:jfinan:v:46:y:1991:i:1:p:49-74
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