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Open AccessArticle

Credit Spreads, Business Conditions, and Expected Corporate Bond Returns

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School of Economics and Finance, Victoria University of Wellington, Wellington 6140, New Zealand
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Martin Tuchman School of Management, New Jersey Institute of Technology, Newark, NJ 07102, USA
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Department of Economics and Finance, City University of Hong Kong, 220, Hong Kong, China
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School of Management, State University of New York at Buffalo, Buffalo, NY 14260, USA
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Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2020, 13(2), 20; https://doi.org/10.3390/jrfm13020020
Received: 2 December 2019 / Revised: 12 January 2020 / Accepted: 14 January 2020 / Published: 21 January 2020
(This article belongs to the Special Issue Corporate Debt)
Using an aggregate credit spread index, we find that it has substantial predictive power for corporate bond returns over short and long horizons. The return predictability is economically and statistically significant and robust to various controls. The credit spread index and its components have more predictive power for bond returns than conventional default and term spreads. When decomposing the credit spread index into investment- and speculative-grade components, the latter has more predictive power for future bond returns. The source of the index’s predictive power is from its ability to forecast future economic conditions. View Full-Text
Keywords: credit spreads; default risk; corporate bonds; return predictability; economic conditions credit spreads; default risk; corporate bonds; return predictability; economic conditions
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Lin, H.; Tao, X.; Wang, J.; Wu, C. Credit Spreads, Business Conditions, and Expected Corporate Bond Returns. J. Risk Financial Manag. 2020, 13, 20.

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