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The riskiness of corporate bonds

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  • Marco Taboga

    (Bank of Italy)

Abstract

When the riskiness of an asset increases, then, arguably, some risk-averse agents that were previously willing to hold on to the asset are no longer willing to do so. Aumann and Serrano (2008) have recently proposed an index of riskiness that helps to make this intuition rigorous. We use their index to analyze the riskiness of corporate bonds and how this can change over time and across rating classes and how it compares to the riskiness of other financial instruments. We find statistically significant evidence that a number of financial and macroeconomic variables can predict time-variation in the riskiness of corporate bonds, including in ways one might not expect. For example, a higher yield-to-maturity lowers riskiness by reducing the frequency and the magnitude of negative holding-period returns.

Suggested Citation

  • Marco Taboga, 2009. "The riskiness of corporate bonds," Temi di discussione (Economic working papers) 730, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_730_09
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    Cited by:

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    2. Alexandru Manole & Madalina Anghel & Emilia Stanciu & Alexandru Badiu, 2016. "Analysis models for the financial risk," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(9), pages 73-80, September.
    3. Chia-Chi Lu & Carl Hsin-han Shen & Pai-Ta Shih & Wei‐Che Tsai, 2023. "Option implied riskiness and risk-taking incentives of executive compensation," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1143-1160, April.
    4. Tarik Bazgour & Federico Platania, 2022. "A defaultable bond model with cyclical fluctuations in the spread process," Annals of Operations Research, Springer, vol. 312(2), pages 647-672, May.

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    More about this item

    Keywords

    riskiness; corporate bonds; predictability;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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