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The Riskiness of Corporate Bonds
Author(s) -
TABOGA MARCO
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12122
Subject(s) - bond , volatility (finance) , corporate bond , portfolio , economics , econometrics , index (typography) , inflation (cosmology) , financial economics , monetary economics , actuarial science , finance , computer science , physics , world wide web , theoretical physics
We use an index of riskiness recently proposed by Aumann and Serrano ([Aumann, Robert J., 2008]) to analyze how the riskiness of diversified portfolios of corporate bonds changes across rating classes and through time and how it compares to the riskiness of other financial instruments. We find that differences in riskiness among portfolios of bonds belonging to different rating classes are seldom statistically significant. We instead find significant time variation in riskiness, driven mainly by return volatility, inflation, and average bond yields. In particular, we find that increases in average bond yields have historically tended to reduce the riskiness of portfolios of corporate bonds by increasing their expected return and by lowering the probability of portfolio losses.