Journal of Banking & Finance Vol. 83 2017
The q-factors and expected bond returns
Abstract
This study provides new insight into the recent debate on profitability and investment patterns in the cross-section of expected returns. Relying on implied risk premia of U.S. corporate bonds, we document a strong negative relation between exposure to the profitability factor and cost of debt. We do not observe a robust relation between exposure to the investment factor and cost of debt. Our findings are consistent with profitability being a risk factor, but suggest that high profitability implies lower (and not higher) risk. Because the market portfolio consists of all risky assets including corporate bonds, our findings challenge a risk-based explanation for the profitability and investment patterns in stock returns.
- DOI
- 10.1016/j.jbankfin.2017.06.005
- Volume
- 83
- Pages
- 19-35
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex