BAFI Department Seminar
Common Risk Factors in the Cross-Section of Corporate Bond Returns
Speaker(s): Turan G. Bali
Date & Time: Friday, March 31 from 10:30 a.m. to Noon
We investigate the cross-sectional determinants of corporate bonds and find that downside risk is the strongest predictor of future bond returns. We also introduce common risk factors based on the prevalent risk characteristics of corporate bonds – downside risk, credit risk, and liquidity risk – and find that these novel bond market factors have economically and statistically significant risk premia, which cannot be explained by the long-established stock and bond market factors. We further show that these newly proposed risk factors outperform all other models considered in the literature in explaining the returns of the industry-sorted and size/maturity-sorted portfolios of corporate bonds.
Peter B. Lewis Building
11119 Bellflower Road
Cleveland, OH 44106-7235
Attachment: Bali paper
Weatherhead School of Management at Case Western Reserve University cultivates creativity, innovation, and purpose-driven leadership to design a better world.