Affiliation:
1. Rotman School of Management, University of Toronto, Toronto, Ontario M5S 1A1, Canada;
2. Chinese University of Hong Kong Business School, The Chinese University of Hong Kong, Hong Kong
Abstract
A one-factor model based on long-run consumption growth explains the risk premiums on corporate bond portfolios sorted on credit rating, credit spreads, downside risk, idiosyncratic volatility, long-term reversals, maturity, and sensitivity to the financial intermediary capital factor. The estimated risk-aversion coefficient is lower when we use the consumption growth of wealthy households over a longer horizon as a risk factor, and a model with a 20-quarter horizon yields a risk-aversion coefficient of 15, a value similar to the one estimated from equity portfolios. This paper was accepted by Bruno Biais, finance. Funding: Y. Nozawa acknowledges funding from the Center for Investing at the Hong Kong University and Science and Technology. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4784 .
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Strategy and Management
Cited by
2 articles.
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