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Risk and return in international corporate bond markets

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  • Bekaert, Geert
  • De Santis, Roberto A.

Abstract

Corporate bond returns in the major developed economies increase with risk, as measured by maturity and ratings. From a pricing perspective, we find little to no evidence against the World CAPM model, where the market consists out of equity, sovereign and corporate bonds. However, from a factor model perspective, local factors contribute substantially more to the variation of corporate bond returns than global factors. The factor exposures show intuitive patterns: as ratings worsen, equity betas show a hockey stick pattern, sovereign betas decline monotonically and corporate bond betas increase steeply. JEL Classification: G10, G11, G15

Suggested Citation

  • Bekaert, Geert & De Santis, Roberto A., 2020. "Risk and return in international corporate bond markets," Working Paper Series 2452, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20202452
    Note: 185689
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    More about this item

    Keywords

    asset class integration; bond ratings; CAPM; corporate bond markets; international market integration; return; risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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