Risk Factors in Australian Bond Returns

28 Pages Posted: 3 Jun 2017

See all articles by Robert J. Bianchi

Robert J. Bianchi

Griffith University

Michael E. Drew

Griffith University

Eduardo Roca

Griffith University

Timothy Whittaker

Griffith University - Department of Accounting, Finance and Economics

Date Written: June 2017

Abstract

This study examines the risk factors in Australian bond returns. The study quantifies bond liquidity and estimates a liquidity risk factor in the Australian setting. We develop a three‐factor asset pricing framework that uses term, default and liquidity risk factors to explain the variation of Australian bond returns. Our findings corroborate the US evidence on the pervasiveness of these risk factors faced by bond investors. The three‐factor model developed in this study has practical applications when calculating the cost of debt, evaluating the performance of an active bond fund manager and hedging underlying risk in a bond portfolio.

Keywords: Asset pricing, Bond pricing, Default and term beta, Liquidity risk

Suggested Citation

Bianchi, Robert J. and Drew, Michael E. and Roca, Eduardo and Whittaker, Timothy, Risk Factors in Australian Bond Returns (June 2017). Accounting & Finance, Vol. 57, Issue 2, pp. 373-400, 2017. Available at SSRN: https://ssrn.com/abstract=2979633 or http://dx.doi.org/10.1111/acfi.12174

Robert J. Bianchi (Contact Author)

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Michael E. Drew

Griffith University ( email )

Brisbane, Queensland 4111
Australia

Eduardo Roca

Griffith University ( email )

170 Kessels Road, Nathan
Queensland
Brisbane, 4111
Australia
(07) 373 57583 (Phone)

Timothy Whittaker

Griffith University - Department of Accounting, Finance and Economics ( email )

PMB 50
Gold Coast Queensland 9726
Australia

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