Predictions of corporate bond excess returns

Hai Lin, Junbo Wang and Chunchi Wu

Journal of Financial Markets, 2014, vol. 21, issue C, 123-152

Abstract: In this paper, we investigate the predictability of corporate bond excess returns using a comprehensive data sample for the period from January 1973 to December 2010. We find that corporate bond returns are more predictable than stock returns, and the predictability tends to be higher for low-grade bonds and short-maturity bonds. A forward rate factor captures substantial variations in expected bond excess returns. Furthermore, liquidity factors and a bond׳s credit spread have predictive power on corporate bond excess returns. Combining these variables with traditional predictors significantly improves the performance of the predictive model for corporate bond returns.

Keywords: Return predictability; Default premium; Term premium; Duration; Credit spreads; Liquidity (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:21:y:2014:i:c:p:123-152

DOI: 10.1016/j.finmar.2014.08.003

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