Common Factors in the Performance of European Corporate Bonds – Evidence Before and after Financial Crisis

42 Pages Posted: 1 Mar 2012

See all articles by Wolfgang Aussenegg

Wolfgang Aussenegg

Vienna University of Technology

Lukas Götz

UNIQA Finanz-Service GmbH

Ranko Jelic

University of Sussex Business School

Date Written: February 28, 2012

Abstract

This paper examines common risk factors in Euro-denominated corporate bond returns before and after recent financial crisis. Our results suggest that level and slope of interest rate and default spread term structures significantly improve the explanatory power of asset pricing models for the cross-section of corporate bonds. Further, we demonstrate that corporate bonds with maturities between one and three years continue to yield statistically significant abnormal returns even after controlling for the levels and slopes of interest and default spread term structures. The abnormal returns are up to 151 basis points annually for these short term bonds and are thus of considerable economic interest. The sensitivity of corporate bond returns to interest rate level and slope risk is quite stable over time, whereas the sensitivity to level and slope default risk factors changed during the period of recent financial crisis. Our results are robust to GRS-test, calendar seasonality, and use of alternative risk-free benchmarks.

Keywords: Asset Pricing, Euro Corporate Bonds, Factor Models, Financial Crisis, Anomalies

JEL Classification: G12, G14, G15, G30

Suggested Citation

Aussenegg, Wolfgang and Götz, Lukas and Jelic, Ranko, Common Factors in the Performance of European Corporate Bonds – Evidence Before and after Financial Crisis (February 28, 2012). Available at SSRN: https://ssrn.com/abstract=2012688 or http://dx.doi.org/10.2139/ssrn.2012688

Wolfgang Aussenegg (Contact Author)

Vienna University of Technology ( email )

Theresianumgasse 27
Vienna, A-1040
Austria
+43 1 58801 33082 (Phone)
+43 1 58801 33098 (Fax)

HOME PAGE: http://www.imw.tuwien.ac.at/fc/people/wolfgang_aussenegg/

Lukas Götz

UNIQA Finanz-Service GmbH ( email )

Untere Donaustraße 21
Vienna, 1029
Austria

Ranko Jelic

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom
+441273872597 (Phone)

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