Risk and Return in International Corporate Bond Markets

60 Pages Posted: 16 May 2019 Last revised: 18 Nov 2020

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2019

Abstract

Corporate bond returns in major developed economies increase with lower ratings and higher residual maturity. The performance of various factor models featuring corporate, sovereign and equity markets as factors suggests that the corporate bond factor plays a dominant role in explaining the variation of corporate bond returns. From a factor model perspective, local factors contribute substantially more than global factors. The factor exposures show intuitive patterns: as ratings worsen, corporate bond betas increase steeply, sovereign betas decline monotonically and equity betas show a hockey stick pattern. However, from a pricing perspective, we find little evidence against the global CAPM model.

Keywords: Corporate bond markets; CAPM; international market integration; asset class integration; bond ratings; risk; return; market efficiency tests; comovement.

JEL Classification: G10, G11, G15

Suggested Citation

Bekaert, Geert and De Santis, Roberto A., Risk and Return in International Corporate Bond Markets (March 1, 2019). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3372466 or http://dx.doi.org/10.2139/ssrn.3372466

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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