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Is There A Risk Return Tradeoff In The Corporate Bond Market Time Series And Cross Sectional Evidence
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Book Synopsis Is There a Risk-Return Tradeoff in the Corporate Bond Market? Time-Series and Cross-Sectional Evidence by : Jennie Bai
Download or read book Is There a Risk-Return Tradeoff in the Corporate Bond Market? Time-Series and Cross-Sectional Evidence written by Jennie Bai and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide time-series and cross-sectional evidence on the significance of a risk-return tradeoff in the corporate bond market. We find a significantly positive intertemporal relation between expected return and risk in the bond market and the time-series predictability is driven by aggregate systematic risk instead of aggregate idiosyncratic risk. We also propose a new measure of systematic risk for corporate bonds and find a positive link between systematic risk and the cross-section of future bond returns. We provide an explanation for the significance of systematic (idiosyncratic) risk based on different investor preferences and informational frictions in the bond (equity) market.
Book Synopsis Volatility and the Cross-Section of Corporate Bond Returns by : Kee H. Chung
Download or read book Volatility and the Cross-Section of Corporate Bond Returns written by Kee H. Chung and published by . This book was released on 2018 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the pricing of volatility risk and idiosyncratic volatility in the cross-section of corporate bond returns for the period of 1994-2016. Results show that bonds with high volatility betas have low expected returns and this negative relation appears in all segments of corporate bonds. Further, bonds with high idiosyncratic bond (stock) volatility have high (low) expected returns, and this relation strengthens as ratings decrease. Conventional risk factors and bond/issuer characteristics cannot account for these cross-sectional relations. There is evidence that the effect of idiosyncratic stock volatility on expected bond returns works through the channel of contemporaneous stock returns.
Book Synopsis Are Stock and Corporate Bond Markets Integrated? Evidence from Expected Returns by : Jeroen van Zundert
Download or read book Are Stock and Corporate Bond Markets Integrated? Evidence from Expected Returns written by Jeroen van Zundert and published by . This book was released on 2017 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores the cross-sectional integration of stock and corporate bond markets by comparing a firm's expected stock return, as implied by corporate bond spreads, to its realized stock return. We compute expected corporate bond returns by correcting credit spreads for expected losses due to default, which are then transformed into expected stock returns. We find, surprisingly, a strong negative cross-sectional relation between these expected and realized stock returns over the period 1994-2015. This effect is stronger for firms with higher default risk, as measured by probability of default, leverage or credit rating, and cannot be explained by differences in the pricing of risk factors in stock and bond markets, limits to arbitrage or liquidity premiums.
Book Synopsis The Complete Guide to Portfolio Performance by : Pascal François
Download or read book The Complete Guide to Portfolio Performance written by Pascal François and published by John Wiley & Sons. This book was released on 2024-04-23 with total page 1095 pages. Available in PDF, EPUB and Kindle. Book excerpt: An intuitive and effective desk reference for performance measurement in asset and wealth management In The Complete Guide to Portfolio Performance: Appraise, Analyse, Act, a team of finance professors with extended practical experience deliver a hands-on desk reference for asset and wealth managers suitable for everyday use. Intuitively organized and full of concrete examples of the real-world implementation of the concepts discussed within, the book provides a comprehensive coverage of all important portfolio performance matters across 18 chapters of actionable and clearly described content. The authors have provided relevant cross-referencing where appropriate, “Key Takeaways and Equations” sections at the end of each chapter, and pointers to additional resources for anyone interested in pursuing further research. You'll also find: Discussions of more than a hundred classical and modern performance measures organized logically and with a focus on their applications Strategies for selecting appropriate performance measures based on your situation as a manager or investor Explanations of analytical techniques (statistical approaches, attribution, fund ratings...) enabling a comprehensive use of performance-related information Applications of portfolio performance criteria in concrete investment decision-making processes Highly actionable and logically organized material that's easy to find at a moment's notice A full set of pedagogical powerpoint slides and excel worksheets with all data and formulas Perfect for investors, portfolio managers, advisors, analysts, and regulators, The Complete Guide to Portfolio Performance is also a must-read reference for students and practitioners of asset and wealth management, as well as those pursuing certification such as CFA, CIPM, CIIA, and CAIA.
Book Synopsis Common Risk Factors in the Cross-Section of Corporate Bond Returns by : Jennie Bai
Download or read book Common Risk Factors in the Cross-Section of Corporate Bond Returns written by Jennie Bai and published by . This book was released on 2018 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the cross-sectional determinants of corporate bond returns 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 factors have economically and statistically significant risk premia that cannot be explained by long-established stock and bond market factors. We show that the newly proposed risk factors outperform all other models considered in the literature in explaining the returns of the industry- and size/maturity-sorted portfolios of corporate bonds.
Book Synopsis Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns by : Söhnke M. Bartram
Download or read book Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns written by Söhnke M. Bartram and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the role played by "bond book-to-market" ratios in U.S. corporate bond pricing. Controlling for numerous risk factors tied to default and priced asset risk, including yield-to-maturity, we find that the ratio of a corporate bond's book value to its market price strongly predicts the bond's future return. The quintile of bonds with the highest book-to-market ratios outperforms the quintile with the lowest ratios by more than 3% per year, other things equal. Additional evidence on signal delay, scope of signal efficacy, and factor risk rejects the thesis that the corporate bond market is perfectly informationally efficient, although significant positive alpha spreads are erased by transaction costs.
Book Synopsis The Cross-section and Time-series of Stock and Bond Returns by : Stefan Dercon
Download or read book The Cross-section and Time-series of Stock and Bond Returns written by Stefan Dercon and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Value stocks have higher exposure to innovations in the nominal bond risk premium than growth stocks. Since the nominal bond risk premium measures cyclical variation in the market's assessment of future output growth, this results in a value risk premium provided that good news about future output lowers the marginal utility of wealth today. In support of this mechanism, we provide new historical evidence that low return realizations on value minus growth, typically at the start of recessions when nominal bond risk premia are low and declining, are associated with lower future dividend growth rates on value minus growth and with lower future output growth. Motivated by this connection between the time series of nominal bond returns and the cross-section of equity returns, we propose a parsimonious three-factor model that jointly prices the cross-section of returns on portfolios of stocks sorted on book-to-market dimension, the cross-section of government bonds sorted by maturity, and time series variation in expected bond returns. Finally, a structural dynamic asset pricing model with the business cycle as a central state variable is quantitatively consistent with the observed value, equity, and nominal bond risk premia.
Book Synopsis Empirical Investigations of Equity Market Anomalies in Corporate Bond and Firm Returns by : Frederick M. Hood
Download or read book Empirical Investigations of Equity Market Anomalies in Corporate Bond and Firm Returns written by Frederick M. Hood and published by . This book was released on 2009 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In this thesis I examine two questions related to corporate debt markets. First, how do corporate bond prices react to firm specific information? Second, are the size and book-to-market premiums found in the cross-section of equity returns due to capital structure risk or asset risk? I utilize a unique set of corporate bond returns from Merrill Lynch to provide answers to both questions. In Chapter 1 I describe the bond data and establish that weekly return distributions derived from the Merrill Lynch prices are similar to both pure transaction data and data from a different pricing service. In Chapter 2 I provide evidence that the Merrill Lynch prices reflect firm specific information and the firm specific information in bond prices contains more information about the mean of the firm's cash flows than the variance. I find a positive relationship between weekly bond and stock returns using time-series regressions after controlling for market returns. I also examine cumulative abnormal bond returns around earnings surprises and find that bonds react as predicted given the asymmetric nature of their payoff. Bonds with higher relative credit risk react more to earnings surprises. In addition, bonds react more to negative surprises than positive surprises. Stock prices incorporate the information in earnings surprises relatively faster than bonds do and the relative reaction of bonds to stocks around surprises is small. The demonstration of the bond prices adjusting to firm level information validates their use at the monthly level to build a bond return model. In Chapter 3 I provide strong evidence that capital structure differences across firms account for a significant portion of the book-to-market and size premiums found in equity returns. I first establish that standard measures of equity beta from the Capital Asset Pricing Model do not fully reflect differences in financial leverage across firms as expected. I test the hypothesis that missing low grade debt claims from the market portfolio lead to systematic measurement errors in beta related to financial leverage. I do not find support for this hypothesis. In addition, I find that controlling for asset risk differences across firms does not change the conclusion regarding missing leverage risk from beta. I argue that multiple econometric issues do not allow one to directly control for leverage in equity return asset pricing tests. Therefore, I construct firm returns (weighted debt and equity) using an econometric model of debt returns. The model is estimated using the Merrill Lynch data. I am unable to reject the hypothesis that the premium on book-to-market in firm returns is zero. In addition, the premium on size decreases by more than one half. I also find that coefficients on industry adjusted size and book-to-market are substantially lower. Finally, I link my results to prior studies that argue that size and book-to-market premiums in equity returns are related to default risk since financial leverage is a major determinant of default risk. I examine the relationship between default risk as measured by Moody's KMV and equity and firm returns. I find that there is a positive premium on default risk in equity returns and that the premium is substantially lower in firm returns"--Leaves v-vi.
Book Synopsis Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios! by : Himanshu Verma
Download or read book Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios! written by Himanshu Verma and published by . This book was released on 2020 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine momentum and reversal anomalies in corporate bond returns at the firm-level employing a novel dataset, SoKat Credit, comprising bonds of 323 of the largest and liquid companies over the period from 2002 to 2020. Our study documents significant short-term reversal in the cross-sectional of corporate bond returns concentrated at the one week interval with annualized returns on the zero investment long-short portfolio of 9.9%. We also document company-level momentum spillover effect into corporate bond returns when sorting on past equity returns, that is, our “bond-stock” strategy, which delivers annualized return of 5.0% is statistically significant and robust baring the usual suspects of caveats.
Book Synopsis In Search of Systematic Risk and the Idiosyncratic Volatility Puzzle in the Corporate Bond Market by : Jennie Bai
Download or read book In Search of Systematic Risk and the Idiosyncratic Volatility Puzzle in the Corporate Bond Market written by Jennie Bai and published by . This book was released on 2019 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: We propose a comprehensive measure of systematic risk for corporate bonds as a nonlinear function of robust risk factors and find a significantly positive link between systematic risk and the time-series and cross-section of future bond returns. We also find a positive but insignificant relation between idiosyncratic risk and future bond returns, suggesting that institutional investors dominating the bond market hold well-diversified portfolios with a negligible exposure to bond-specific risk. The composite measure of systematic risk also predicts the distribution of future market returns, and the systematic risk factor earns a positive price of risk, consistent with Merton's (1973) ICAPM
Book Synopsis The Cross-Section and Time-Series of Stock and Bond Returns by : Ralph S. J. Koijen
Download or read book The Cross-Section and Time-Series of Stock and Bond Returns written by Ralph S. J. Koijen and published by . This book was released on 2014 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Low realizations of the bond factors, typically at the onset of recessions, coincide with low value-minus-growth returns, low future dividend growth on value-minus-growth, and low future economic growth. This evidence supports the view that the business cycle is a priced state variable in stock markets. Because of this new nexus between stock and bond markets, a parsimonious three-factor model can be used to jointly price the book-to-market stock and maturity-sorted bond portfolios and reproduce the time-series variation in expected bond returns. Structural dynamic asset pricing models need to include a central role for the business cycle as a priced state variable to be quantitatively consistent with the observed value, equity, and bond risk premia.
Book Synopsis The Effects of Credit Rating and Watchlist Announcements on the U.S. Corporate Bond Market by :
Download or read book The Effects of Credit Rating and Watchlist Announcements on the U.S. Corporate Bond Market written by and published by . This book was released on 2014 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Further Evidence on the Risk-return Relationship by : Yakov Amihud
Download or read book Further Evidence on the Risk-return Relationship written by Yakov Amihud and published by . This book was released on 1993 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Risk Return Tradeoff in the Long-Run by : Christian T. Lundblad
Download or read book The Risk Return Tradeoff in the Long-Run written by Christian T. Lundblad and published by . This book was released on 2012 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: The risk-return tradeoff is fundamental to finance. However, while many asset pricing models imply a positive relationship between the risk premium on the market portfolio and the variance of its return, previous studies find the empirical relationship is weak at best. In sharp contrast, this study, demonstrates that the weak empirical relationship is an artifact of the small sample nature of the available data, as an extremely large number of time-series observations is required to precisely estimate this relationship. To maximize the available time-series, I employ the nearly two century history of US equity market returns from Schwert (1990), exploring the empirical risk-return tradeoff for a variety of specifications that allow for asymmetric volatility, regime-switching, and additional factors associated with intertemporal (ICAPM) hedging demands. Similar to studies that use the more recent US equity price history, conditional market volatility in the historical data is persistent and displays strong asymmetric relationships to return innovations. Further, the conditional correlation between stock and bond markets is closely related to periods of documented financial crises. Finally, in contrast to evidence based upon the recent US experience, the estimated relationship between risk and return is positive and statistically significant across every specification considered.
Book Synopsis Investor Sentiment and the Cross-Section of Corporate Bond Returns by : Xu Guo
Download or read book Investor Sentiment and the Cross-Section of Corporate Bond Returns written by Xu Guo and published by . This book was released on 2019 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper constructs an investor sentiment measure at both individual bond and aggregate levels, uncovering the first evidence that investor sentiment has strong cross- sectional predictive power for corporate bond returns. High bond investor sentiment leads to low future returns. A portfolio that longs low sentiment bonds and shorts high sentiment ones generates an average monthly return of 0.87% for top-quality bonds and 1.48% for speculative-grade bonds. The results are robust to controlling for risk factors and bond characteristics. The cross-sectional predictability of bond returns is countercyclical, and the predictability appears to stem from its predictive power on macroeconomic conditions.
Book Synopsis News and the Cross-Section of Expected Corporate Bond Returns by : Abhay Abhyankar
Download or read book News and the Cross-Section of Expected Corporate Bond Returns written by Abhay Abhyankar and published by . This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Empirical Asset Pricing by : Turan G. Bali
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
