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News and the cross-section of expected corporate bond returns

  • Abhyankar, Abhay
  • Gonzalez, Angelica
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    We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three-factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors - innovations about future inflation and innovations about future real interest rates - explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds.

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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 33 (2009)
    Issue (Month): 6 (June)
    Pages: 996-1004

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    Handle: RePEc:eee:jbfina:v:33:y:2009:i:6:p:996-1004
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    8. Chang, Eric C. & Huang, Roger D., 1990. "Time-Varying Return and Risk in the Corporate Bond Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 323-340, September.
    9. de Goeij, P. C. & Marquering, W., 2006. "Macroeconomic announcements and asymmetric volatility in bond returns," Other publications TiSEM bc4389f3-bad2-4e5b-b996-3, Tilburg University, School of Economics and Management.
    10. Gebhardt, William R. & Hvidkjaer, Soeren & Swaminathan, Bhaskaran, 2005. "The cross-section of expected corporate bond returns: Betas or characteristics?," Journal of Financial Economics, Elsevier, vol. 75(1), pages 85-114, January.
    11. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
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