Re-Examining the Credit Premium

47 Pages Posted: 22 Mar 2018 Last revised: 4 Aug 2019

See all articles by Jared Kizer

Jared Kizer

Buckingham Strategic Wealth

Sean Grover

Georgetown University McDonough School of Business

Corey Hendershot

Buckingham Strategic Wealth

Date Written: July 30, 2019

Abstract

Using the Ibbotson/Sinquefield data documenting the returns of long-term corporate and government bonds, Asvanunt and Richardson [2017] find a sizable investment-grade credit premium that is also statistically significant after accounting for exposure to equity, size, value and momentum factors. In this piece, we focus on the Ibbotson/Sinquefield data starting in 1969 when the series began directly referencing the Salomon Brothers High-Grade Long-Term Corporate Bond Index spliced with Bloomberg/Barclay's data starting in August 1988 and separately the Bloomberg/Barclay's data going back to 1975. For both series, we find a weaker credit premium that is not statistically significant after adjusting for equity market factors. Consequently, we find that corporate bonds are duplicative in portfolios that already include stocks and government bonds and therefore have not improved portfolio efficiency.

Keywords: Corporate Bonds, Credit Risk, Credit Risk Premium

JEL Classification: G11, G12

Suggested Citation

Kizer, Jared and Grover, Sean and Hendershot, Corey, Re-Examining the Credit Premium (July 30, 2019). Available at SSRN: https://ssrn.com/abstract=3147005 or http://dx.doi.org/10.2139/ssrn.3147005

Jared Kizer (Contact Author)

Buckingham Strategic Wealth ( email )

8182 Maryland Avenue Suite 500
St. Louis, MO
United States

Sean Grover

Georgetown University McDonough School of Business ( email )

37th and O Streets NW
Washington, DC 20057
United States

Corey Hendershot

Buckingham Strategic Wealth ( email )

8182 Maryland Avenue Suite 500
St. Louis, MO
United States

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