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Priced risk in corporate bonds

Author

Listed:
  • Dickerson, Alexander
  • Mueller, Philippe
  • Robotti, Cesare

Abstract

Recent studies document strong empirical support for multifactor models that aim to explain the cross-sectional variation in corporate bond expected excess returns. We revisit these findings and provide evidence that common factor pricing in corporate bonds is exceedingly difficult to establish. Based on portfolio- and bond-level analyses, we demonstrate that previously proposed bond risk factors, with traded liquidity as the only marginal exception, do not have any incremental explanatory power over the corporate bond market factor. Consequently, this implies that the bond CAPM is not dominated by either traded- or nontraded-factor models in pairwise and multiple model comparison tests.

Suggested Citation

  • Dickerson, Alexander & Mueller, Philippe & Robotti, Cesare, 2023. "Priced risk in corporate bonds," Journal of Financial Economics, Elsevier, vol. 150(2).
    • Handle: RePEc:eee:jfinec:v:150:y:2023:i:2:s0304405x23001393
    DOI: 10.1016/j.jfineco.2023.103707
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate bond pricing; Bond CAPM; Sharpe ratio; Efficient frontier; Model misspecification and identification;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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