What Do We Know About Corporate Bond Returns?

Jingzhi Huang and Zhan Shi
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Zhan Shi: PBC School of Finance, Tsinghua University, Beijing 100083, China

Annual Review of Financial Economics, 2021, vol. 13, issue 1, 363-399

Abstract: Recently, there has been a fast-growing literature on the determinants of corporate bond returns, in particular, the driving force of cross-sectional return variation. In this review, we first survey recent empirical studies on this important topic. We discuss cross-sectional evidence as well as time-series evidence. We then present a model-based analysis of individual corporate bond returns using the structural approach for credit risk modeling. We show, among other things, that the expected corporate bond return implied by the Merton model predicts 1-month-ahead corporate bond returns in the cross section.

Keywords: corporate bond returns; Merton model–implied expected corporate bond returns; credit spreads; spread changes; corporate bond sensitivity to equity or leverage; structural credit risk models (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1146/annurev-financial-110118-123129

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