scholarly journals Distress Risk Premia in Stock and Bond Returns

2011 ◽  
Author(s):  
Andrew (Jianzhong) Zhang
Keyword(s):  
Risk Premia ◽  
Distress Risk ◽  
Bond Returns

Liquidity Risk Premia in Corporate Bond Markets

2012 ◽  
Vol 02 (02) ◽  
pp. 1250006 ◽  
Author(s):  
Frank de Jong ◽  
Joost Driessen
Keyword(s):  
Risk Premium ◽  
Corporate Bonds ◽  
Liquidity Risk ◽  
Risk Premia ◽  
Market Liquidity ◽  
Corporate Bond ◽  
Expected Returns ◽  
Bond Returns ◽  
Treasury Bond ◽  
Investment Grade

This paper explores the role of liquidity risk in the pricing of corporate bonds. We show that corporate bond returns have significant exposures to fluctuations in treasury bond liquidity and equity market liquidity. Further, this liquidity risk is a priced factor for the expected returns on corporate bonds, and the associated liquidity risk premia help to explain the credit spread puzzle. In terms of expected returns, the total estimated liquidity risk premium is around 0.6% per annum for US long-maturity investment grade bonds. For speculative grade bonds, which have higher exposures to the liquidity factors, the liquidity risk premium is around 1.5% per annum. We find very similar evidence for the liquidity risk exposure of corporate bonds for a sample of European corporate bond prices.

scholarly journals Bond risk premia and the return forecasting factor

2019 ◽  
Vol 24 (1) ◽  
Author(s):  
Agustin Gutierrez ◽  
Constantino Hevia ◽  
Martin Sola
Keyword(s):  
Term Structure ◽  
Yield Curve ◽  
Risk Premia ◽  
Term Structure Model ◽  
Forward Rates ◽  
Bond Risk Premia ◽  
Bond Returns ◽  
Main Driver ◽  
Bond Risk ◽  
Better Than

Abstract The return forecasting factor is a linear combination of forward rates that seems to predict 1-year excess bond returns of bond of all maturities better than traditional measures obtained from the yield curve. If this single factor actually captures all the relevant fluctuations in bond risk premia, then it should also summarize all the economically relevant variations in excess returns considering different holding periods. We find that it does not. We conclude that including the return forecasting factor as the main driver of risk premia in a term structure model, as has been suggested, is not supported by the data.

Risk Premia in the 8:30 Economy

2018 ◽  
Vol 08 (03) ◽  
pp. 1850010 ◽  
Author(s):  
Jon Faust ◽  
Jonathan H. Wright
Keyword(s):  
Risk Premia ◽  
Time Varying ◽  
Excess Returns ◽  
Macroeconomic News ◽  
Asset Risk ◽  
Macroeconomic Announcements ◽  
News Announcements ◽  
Bond Returns ◽  
The Times ◽  
Over Time

Financial asset risk premia are widely agreed to vary over time. This paper decomposes these risk premia into expected excess returns earned in short windows around the times of macroeconomic news announcements (which mostly come out at 8:30[Formula: see text]am) and the expected excess returns that are earned at other times. Using intradaily data, we find that some, but not all, of the time-varying expected excess returns accrue right around macroeconomic announcements. In forecasting six-month cumulative bond returns, there is more predictability in announcement windows than at other times.

scholarly journals Exchange Rates and Sovereign Risk

2021 ◽  
Author(s):  
Pasquale Della Corte ◽  
Lucio Sarno ◽  
Maik Schmeling ◽  
Christian Wagner
Keyword(s):  
Risk Factor ◽  
Exchange Rates ◽  
Cross Section ◽  
Credit Default Swap ◽  
Risk Premia ◽  
Sovereign Risk ◽  
Distress Risk ◽  
Credit Default ◽  
Default Swap ◽  
Swap Spreads

An increase in a country’s sovereign risk, as measured by credit default swap spreads, is accompanied by a contemporaneous depreciation of its currency and an increase of its volatility. The relation between currency excess returns and sovereign risk is mainly driven by default expectations (rather than distress risk premia) and exposure to global sovereign risk shocks and also emerges in a predictive setting for currency risk premia. We show that a sovereign risk factor is priced in the cross-section of currency returns and that it is not subsumed by the carry factor. This paper was accepted by David Simchi-Levi, finance.

scholarly journals Multi-level factor analysis of bond risk premia

2017 ◽  
Vol 21 (5) ◽  
Author(s):  
Dukpa Kim ◽  
Yunjung Kim ◽  
Yuhyeon Bak
Keyword(s):  
Predictive Power ◽  
Factor Model ◽  
Risk Premia ◽  
The Real ◽  
Financial Factors ◽  
Bond Risk Premia ◽  
Bond Returns ◽  
Macroeconomic Fundamentals ◽  
Multi Level ◽  
Bond Risk

AbstractEarlier studies in the finance literature show that macroeconomic fundamentals can predict excess bond returns. We employ a multi-level factor model to estimate global and sectoral factors separately and show that (i) the real factors possess most important predictive power existing in the panel; (ii) the financial factors might have some predictive power but less than the real factors; (iii) the inflation factors have almost no predictive power and (iv) the excess bond returns have a countercyclical component.

scholarly journals The Term Structure of Currency Carry Trade Risk Premia

2019 ◽  
Vol 109 (12) ◽  
pp. 4142-4177 ◽  
Author(s):  
Hanno Lustig ◽  
Andreas Stathopoulos ◽  
Adrien Verdelhan
Keyword(s):  
Term Structure ◽  
Developed Countries ◽  
Risk Premia ◽  
Investment Horizon ◽  
Carry Trade ◽  
No Arbitrage ◽  
Bond Returns ◽  
Foreign Bonds ◽  
Term Premia

Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. Across developed countries, the local currency term premia, which increase with the maturity of the bonds, offset the currency risk premia. Similarly, in the time-series, the predictability of foreign bond returns in dollars declines with the bonds’ maturities. Leading no-arbitrage models in international finance do not match the downward term structure of currency carry trade risk premia. We derive a simple preference-free condition that no-arbitrage models need to reproduce in the absence of carry trade risk premia on long-term bonds. (JEL E43, G12, G15)

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