Explaining and Benchmarking Corporate Bond Returns

60 Pages Posted: 5 Jul 2017

See all articles by Gjergji Cici

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

Rabih Moussawi

Villanova University - Department of Finance; University of Pennsylvania - The Wharton School

Date Written: June 30, 2017

Abstract

We evaluate how different betas and characteristics related to default, term, and liquidity risk fare against one another in explaining the cross-section of corporate bond returns. We find that characteristics – credit rating, duration, and Amihud illiquidity measure–fare better. Yields add incremental explanatory power. Consistent with yields providing a timelier assessment of default risk than ratings, bonds with higher yields but similar credit ratings, durations and Amihud measures experience more subsequent ratings downgrades, fewer upgrades, and a higher frequency of defaults. Based on our findings, we present characteristic portfolios that can be used to benchmark individual bond and portfolio returns.

Keywords: Corporate bonds, cross-section of returns, credit risk, TRACE, default

JEL Classification: G12, G14

Suggested Citation

Cici, Gjergji and Gibson, George Scott and Moussawi, Rabih, Explaining and Benchmarking Corporate Bond Returns (June 30, 2017). Available at SSRN: https://ssrn.com/abstract=2995626 or http://dx.doi.org/10.2139/ssrn.2995626

Gjergji Cici (Contact Author)

University of Kansas - School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-3873 (Phone)

HOME PAGE: http://business.ku.edu/gjergji-cici

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)

Rabih Moussawi

Villanova University - Department of Finance ( email )

800 E Lancaster Ave
Bartley Hall, 2051
Villanova, PA 19085
United States

HOME PAGE: http://www.homepage.villanova.edu/rabih.moussawi

University of Pennsylvania - The Wharton School ( email )

United States

Register to save articles to
your library

Register

Paper statistics

Downloads
181
Abstract Views
950
rank
170,326
PlumX Metrics