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Priced risk in corporate bonds

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  • Alexander Dickerson
  • Philippe Mueller
  • Cesare Robotti

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

  • Alexander Dickerson & Philippe Mueller & Cesare Robotti, 2026. "Priced risk in corporate bonds," Papers 2604.05699, arXiv.org.
    • Handle: RePEc:arx:papers:2604.05699
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    2. Alexander Dickerson & Christian Julliard & Philippe Mueller, 2026. "The Co-Pricing Factor Zoo," Papers 2604.04430, arXiv.org.
    3. Gharghori, Philip & Nguyen, Annette, 2025. "Which factors in China? A pre-registered report," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    4. He, Wei & Su, Zhiwei & Yu, Jianfeng, 2024. "Macroeconomic perceptions, financial constraints, and anomalies," Journal of Financial Economics, Elsevier, vol. 162(C).
    5. Radi, Sherrihan & Gebka, Bartosz & Kallinterakis, Vasileios, 2024. "The wisdom of the madness of crowds: Investor herding, anti-herding, and stock-bond return correlation," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 966-995.
    6. McGee, Paraic & Sheenan, Lisa & Egan, Tom & O'Donohoe, Sheila, 2025. "Risk factor disclosure in green bond prospectuses and investor compensation," International Review of Financial Analysis, Elsevier, vol. 105(C).
    7. Chen, Jianqiang & Hsieh, Pei-Fang & Hsu, Po-Hsuan & Levine, Ross, 2025. "Environmental liabilities, borrowing costs, and pollution prevention activities: The nationwide impact of the Apex Oil ruling," Journal of Corporate Finance, Elsevier, vol. 91(C).
    8. Ivashchenko, Alexey, 2025. "(In)Frequently traded corporate bonds and pricing implications of liquidity dry-ups," Finance Research Letters, Elsevier, vol. 75(C).
    9. Liu, Yuekun & Riley, Timothy B., 2025. "How should we measure the performance of corporate bond mutual funds? Evaluating model quality and impact on inferences," Journal of Banking & Finance, Elsevier, vol. 173(C).
    10. Dekker, Lennart, 2024. "Essays on asset liquidity and investment funds," Other publications TiSEM 5fc9bf77-84e7-4a36-9e3a-1, Tilburg University, School of Economics and Management.
    11. Beckmeyer, Heiner & Meyerhof, Paul, 2025. "The short-duration premium and news announcements," Journal of Banking & Finance, Elsevier, vol. 176(C).
    12. Feng, Jian & Huo, Xiaolin & Liu, Xin & Mao, Yifei & Xiang, Hong, 2025. "Economic links from bonds and cross-stock return predictability," Journal of Financial Economics, Elsevier, vol. 171(C).
    13. Alexander Dickerson & Cesare Robotti & Giulio Rossetti, 2026. "The Corporate Bond Factor Replication Crisis," Papers 2604.07880, arXiv.org.
    14. Gi H. Kim & Massimo Massa, 2026. "Issuer Term Variability, Bond Yield Spreads, and Reaching for Yield," Management Science, INFORMS, vol. 72(3), pages 2209-2227, March.
    15. Etienne Wijler & Andre Lucas, 2025. "An Impartial Look at Asset Correlation Stability and Market Structure," Tinbergen Institute Discussion Papers 25-051/III, Tinbergen Institute.
    16. Kang, Weijing, 2025. "Impact and mechanisms of digital finance on corporate bond credit spreads in China," Finance Research Letters, Elsevier, vol. 82(C).
    17. Junbo Wang & Chunchi Wu & Xiaoguang Yang & Ye Zhou, 2025. "Policy uncertainty and corporate bond issuance costs," Review of Quantitative Finance and Accounting, Springer, vol. 65(4), pages 1475-1516, November.
    18. Chen, Xi & Wang, Junbo & Wu, Chunchi & Wu, Di, 2024. "Extreme illiquidity and cross-sectional corporate bond returns," Journal of Financial Markets, Elsevier, vol. 68(C).
    19. Huang, Jing-Zhi & Wang, Yan & Wang, Ying, 2024. "Does ownership concentration affect corporate bond volatility? Evidence from bond mutual funds," Journal of Banking & Finance, Elsevier, vol. 165(C).
    20. Desislava Vladimirova, 2024. "In the shadow of country risk: asset pricing model of emerging market corporate bonds," Journal of Asset Management, Palgrave Macmillan, vol. 25(5), pages 479-492, September.
    21. DICKERSON, Alexander & NOZAWA, Yoshio & ROBOTTI, Cesare, 2025. "Factor Investing with Delays," Discussion Paper Series 771, Institute of Economic Research, Hitotsubashi University.
    22. Diego Leal Gonzalez & Bryan Stanhouse & Duane Stock & Xin Yue Zhou, 2025. "Nonlinear structural estimation of corporate bond liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 64(2), pages 799-827, February.
    23. Lalwani, Vaibhav, 2024. "Climate risks, corporate bonds, and economic uncertainty," Economics Letters, Elsevier, vol. 244(C).
    24. Bai, Jennie & Bali, Turan G. & Wen, Quan, 2023. "Retraction notice to “Common risk factors in the cross-section of corporate bond returns” [Journal of Financial Economics 131 (3) (2019) 619-642]," Journal of Financial Economics, Elsevier, vol. 150(3).
    25. Ivashchenko, Alexey, 2024. "Corporate bond price reversals," Journal of Financial Markets, Elsevier, vol. 68(C).

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    More about this item

    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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