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What Do We Know About Corporate Bond Returns?

Authors
  • Huang, Jing-Zhi
  • Shi, Zhan
Type
Published Article
Journal
Annual Review of Financial Economics
Publisher
Annual Reviews
Publication Date
Nov 01, 2021
Volume
13
Pages
363–399
Identifiers
DOI: 10.1146/annurev-financial-110118-123129
Source
Annual Reviews
Keywords
License
Yellow

Abstract

Recently, there has been a fast-growing literature on the determinants of corporate bond returns, in particular, the driving force of cross-sectional return variation. In this review, we first survey recent empirical studies on this important topic. We discuss cross-sectional evidence as well as time-series evidence. We then present a model-based analysis of individual corporate bond returns using the structural approach for credit risk modeling. We show, among other things, that the expected corporate bond return implied by the Merton model predicts 1-month-ahead corporate bond returns in the cross section.

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