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Corporate Bond Returns and Volatility

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  • Nianyun Cai
  • Xiaoquan Jiang

Abstract

Recent literature emphasizes the relation of stock volatility to corporate bond yields. We demonstrate that during 1996–2005 corporate bond excess return volatility is directly related to contemporaneous corporate bond excess returns. In fact, the decompositions of aggregate bond volatility have a higher contemporaneous correlation with bond yields in comparison to idiosyncratic stock risk. Additionally, bond volatility and idiosyncratic risk are significant predictors of corporate three‐month and six‐month ahead bond excess returns. We also find that corporate bond volatility contains both slow moving and time‐varying components.

Suggested Citation

  • Nianyun Cai & Xiaoquan Jiang, 2008. "Corporate Bond Returns and Volatility," The Financial Review, Eastern Finance Association, vol. 43(1), pages 1-26, February.
    • Handle: RePEc:bla:finrev:v:43:y:2008:i:1:p:1-26
    DOI: 10.1111/j.1540-6288.2007.00184.x
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    Cited by:

    1. Ann Marie Hibbert & Ivelina Pavlova & Joel Barber & Krishnan Dandapani, 2011. "Credit Spread Changes and Equity Volatility: Evidence from Daily Data," The Financial Review, Eastern Finance Association, vol. 46(3), pages 357-383, August.
    2. Belén Nieto & Alfonso Novales & Gonzalo Rubio, 2015. "Macroeconomic and Financial Determinants of the Volatility of Corporate Bond Returns," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-41, December.
    3. Ephraim Clark & Selima Baccar, 2018. "Modelling credit spreads with time volatility, skewness, and kurtosis," Annals of Operations Research, Springer, vol. 262(2), pages 431-461, March.

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