Corporate Bond Returns and Volatility
Kelly Nianyun Cai
University of Michigan at Dearborn - School of Management
Florida International University (FIU) - Department of Finance
The Financial Review, Vol. 43, No. 1, pp. 1-26, February 2008
Recent literature emphasizes the relation of stock volatility to corporate bond yields. We demonstrate that during 1996-2005 corporate bond excess return volatility is directly related to contemporaneous corporate bond excess returns. In fact, the decompositions of aggregate bond volatility have a higher contemporaneous correlation with bond yields in comparison to idiosyncratic stock risk. Additionally, bond volatility and idiosyncratic risk are significant predictors of corporate three-month and six-month ahead bond excess returns. We also find that corporate bond volatility contains both slow moving and time-varying components.
Number of Pages in PDF File: 26Accepted Paper Series
Date posted: February 8, 2008
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