News and the cross-section of expected corporate bond returns |
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Authors: | Abhay Abhyankar Angelica Gonzalez |
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Affiliation: | University of Edinburgh, Business School, 50 George Square, Edinburgh, EH8 9JY, United Kingdom |
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Abstract: | We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three-factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors – innovations about future inflation and innovations about future real interest rates – explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds. |
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Keywords: | G10 G12 |
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