Risk and Return in International Corporate Bond Markets

173 Pages Posted: 11 Aug 2020

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Geert Bekaert

Columbia Business School - Finance and Economics

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Date Written: August, 2020

Abstract

Corporate bond returns in the major developed economies increase with risk, as measured by maturity and ratings. From a pricing perspective, we find little to no evidence against the World CAPM model, where the market consists out of equity, sovereign and corporate bonds. However, from a factor model perspective, local factors contribute substantially more to the variation of corporate bond returns than global factors. The factor exposures show intuitive patterns: as ratings worsen, equity betas show a hockey stick pattern, sovereign betas decline monotonically and corporate bond betas increase steeply.

Keywords: asset class integration, bond ratings, CAPM, corporate bond markets, international market integration, return, risk

JEL Classification: G10, G11, G15

Suggested Citation

De Santis, Roberto A. and Bekaert, Geert, Risk and Return in International Corporate Bond Markets (August, 2020). ECB Working Paper No. 20202452, Available at SSRN: https://ssrn.com/abstract=3671499

Roberto A. De Santis

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

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

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