Abstract / Description of output
We study the cross-section of expected corporate bond returns using an intertemporal
CAPM (ICAPM) with three factors: innovations in future excess bond returns,
future real interest rates and future expected ináation. Our test assets are a broad
range of bond market index portfolios of di§erent default categories. We Önd that
the ICAPM can explain the cross-section of expected bond returns and of the three
factors, innovations about future ináation and future real interest rates are the most
important. Our model provides an alternative to the ad hoc risk factor models used,
for example, in evaluating the performance of bond mutual funds.
CAPM (ICAPM) with three factors: innovations in future excess bond returns,
future real interest rates and future expected ináation. Our test assets are a broad
range of bond market index portfolios of di§erent default categories. We Önd that
the ICAPM can explain the cross-section of expected bond returns and of the three
factors, innovations about future ináation and future real interest rates are the most
important. Our model provides an alternative to the ad hoc risk factor models used,
for example, in evaluating the performance of bond mutual funds.
Original language | English |
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Place of Publication | www.econpapers.repec.org |
Publisher | Edinburgh School of Economics Discussion Paper Series |
Number of pages | 58 |
Publication status | Published - Jun 2007 |
Publication series
Name | ESE Discussion Papers |
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No. | 157 |
Keywords / Materials (for Non-textual outputs)
- bond market
- fixed income mutual funds
- asset pricing model
- variance decomposition
- recursive utility
- betas
- factor pricing
- F31
- F37