News and the Cross-Section of Expected Corporate Bond Returns

46 Pages Posted: 31 Mar 2008 Last revised: 19 Apr 2009

See all articles by Abhay Abhyankar

Abhay Abhyankar

MOVE,Departament d'Economia i d'Història Econòmica, Universitat Autònoma de Barcelona

Angelica Gonzalez

University of Edinburgh

Date Written: October 6, 2008

Abstract

We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors - innovations about future inflation and innovations about future real interest rates - explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds.

Keywords: Bond market, Asset pricing model, Variance decomposition

JEL Classification: G10, G12

Suggested Citation

Abhyankar, Abhay and Gonzalez, Angelica, News and the Cross-Section of Expected Corporate Bond Returns (October 6, 2008). Available at SSRN: https://ssrn.com/abstract=1114094 or http://dx.doi.org/10.2139/ssrn.1114094

Abhay Abhyankar

MOVE,Departament d'Economia i d'Història Econòmica, Universitat Autònoma de Barcelona ( email )

Campus de Bellaterra-UAB Edifici B
Cerdanyola del Vallès
Barcelona, Catalunya 08193
Spain

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Angelica Gonzalez (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

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