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Risk and return in international corporate bond markets

Geert Bekaert () and Roberto De Santis ()

No 2452, Working Paper Series from European Central Bank

Abstract: Corporate bond returns in the major developed economies increase with risk, as measured by maturity and ratings. From a pricing perspective, we find little to no evidence against the World CAPM model, where the market consists out of equity, sovereign and corporate bonds. However, from a factor model perspective, local factors contribute substantially more to the variation of corporate bond returns than global factors. The factor exposures show intuitive patterns: as ratings worsen, equity betas show a hockey stick pattern, sovereign betas decline monotonically and corporate bond betas increase steeply. JEL Classification: G10, G11, G15

Keywords: asset class integration; bond ratings; CAPM; corporate bond markets; international market integration; return; risk (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-fmk and nep-ifn
Note: 185689
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Handle: RePEc:ecb:ecbwps:20202452