What Drives Corporate Bond Market Betas?

Abhay Abhyankar () and Angelica Gonzalez ()

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: We study the cross-section of expected corporate bond returns using an intertemporal CAPM 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 bond market index portfolios of different default categories. We find, using the Fama MacBeth cross-sectional method, that innovations in future expected real interest rates and future expected inflation explain the cross-section of expected corporate bond returns. Our model provides an alternative to ad hoc risk factors used, for example, in evaluating the performance of bond mutual funds.

Keywords: bond market; fixed income mutual funds; asset pricing model; variance decomposition; recursive utility; betas; factor pricing (search for similar items in EconPapers)
JEL-codes: F31 F37 (search for similar items in EconPapers)
Pages: 34
Date: 2007-07
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econ.ed.ac.uk/papers/id157_esedps.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:157

Access Statistics for this paper

More papers in Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().