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BOND RISK PREMIUMS, FINANCIAL DATA, AND THE EFFECT OF MARKET SEGMENTATION
Author(s) -
Kolari James W.,
Apilado Vincent P.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00987.x
Subject(s) - bond , market segmentation , econometrics , economics , risk premium , corporate bond , argument (complex analysis) , segmentation , bond market , financial market , linear discriminant analysis , regression analysis , financial economics , actuarial science , finance , statistics , microeconomics , mathematics , computer science , biochemistry , chemistry , artificial intelligence
The main question which this empirical study addresses is: Are the fmancial determinants of bond risk premiums different for industrial versus utility bonds (i.e. market segmentation)? First, a multiple discriminant analysis of eight financial variables is conducted to verify an underlying argument that divergent operational characteristics lead to different financial profiles. Linear regression analyses are then performed cross‐sectionally for the years 1975 to 1979. The results indicate that (1) the market segmentation effect materially affects the determination of bond premiums, (2) the business cycle is an important factor, and (3) utility premiums are less sensitive to fmancial risk than industrial bond premiums.