Credit Spreads, Business Conditions, and Expected Corporate Bond Returns

Hai Lin, Xinyuan Tao, Junbo Wang and Chunchi Wu
Additional contact information
Xinyuan Tao: Martin Tuchman School of Management, New Jersey Institute of Technology, Newark, NJ 07102, USA
Chunchi Wu: School of Management, State University of New York at Buffalo, Buffalo, NY 14260, USA

JRFM, 2020, vol. 13, issue 2, 1-34

Abstract: Using an aggregate credit spread index, we find that it has substantial predictive power for corporate bond returns over short and long horizons. The return predictability is economically and statistically significant and robust to various controls. The credit spread index and its components have more predictive power for bond returns than conventional default and term spreads. When decomposing the credit spread index into investment- and speculative-grade components, the latter has more predictive power for future bond returns. The source of the index’s predictive power is from its ability to forecast future economic conditions.

Keywords: credit spreads; default risk; corporate bonds; return predictability; economic conditions (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/1911-8074/13/2/20/pdf (application/pdf)
https://www.mdpi.com/1911-8074/13/2/20/ (text/html)

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:gam:jjrfmx:v:13:y:2020:i:2:p:20-:d:311789

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().