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The Riskiness of Corporate Bonds

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  • MARCO TABOGA

Abstract

We use an index of riskiness recently proposed by Aumann and Serrano () to analyze how the riskiness of diversified portfolios of corporate bonds changes across rating classes and through time and how it compares to the riskiness of other financial instruments. We find that differences in riskiness among portfolios of bonds belonging to different rating classes are seldom statistically significant. We instead find significant time variation in riskiness, driven mainly by return volatility, inflation, and average bond yields. In particular, we find that increases in average bond yields have historically tended to reduce the riskiness of portfolios of corporate bonds by increasing their expected return and by lowering the probability of portfolio losses.

Suggested Citation

  • Marco Taboga, 2014. "The Riskiness of Corporate Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 693-713, June.
  • Handle: RePEc:wly:jmoncb:v:46:y:2014:i:4:p:693-713
    DOI: 10.1111/jmcb.12122
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    File URL: https://doi.org/10.1111/jmcb.12122
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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