Journal of Financial Economics Vol. 75 No. 1 2005
The cross-section of expected corporate bond returns: Betas or characteristics?
Abstract
This paper finds that default betas are significantly related to the cross-section of average bond returns even after controlling for characteristics such as duration, ratings, and yield-to-maturity. Among characteristics, only yield-to-maturity is significantly related to average bond returns after controlling for default and term betas. The default and term factors are able to price the returns of beta-sorted portfolios better than they do the returns of yield-sorted portfolios. The magnitude of the ex ante Sharpe ratio generated by yield-sorted portfolios suggests non-risk-based explanations. Overall, given the elusive nature of systematic risk in empirical asset pricing, the central finding of our paper is that systematic risk matters for corporate bonds.
- DOI
- 10.1016/j.jfineco.2004.04.002
- Volume
- 75
- Issue
- 1
- Pages
- 85-114
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref