Priced risk in corporate bonds

Alexander Dickerson, Philippe Mueller () and Cesare Robotti

Journal of Financial Economics, 2023, vol. 150, issue 2

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.

Keywords: Corporate bond pricing; Bond CAPM; Sharpe ratio; Efficient frontier; Model misspecification and identification (search for similar items in EconPapers)
JEL-codes: C12 C13 G12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:150:y:2023:i:2:s0304405x23001393

DOI: 10.1016/j.jfineco.2023.103707

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