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Reaching for yield, which we define as an investor preference for higher-yield bonds at a given rating or for higher-rated bonds at given yields, is associated with inflated valuation and thus negatively predicts risk-adjusted returns. Controlling for ratings, alphas are lower for higher-yield bonds, whereas, controlling for yields, alphas are lower for safer-looking, higher-rated bonds. Future bond returns are particularly low when current interest rates are low and demand from yield-reaching investors increases. These bonds experience more frequent downgrades and defaults, suggesting that they are riskier despite their high valuation. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The e-companion and data are available at https://doi.org/10.1287/mnsc.2023.4920. [ABSTRACT FROM AUTHOR]

This study investigates the determinants of trading activity in the U.S. corporate bond market, focusing on the effects of Seasonal Affective Disorder (SAD) and macroeconomic announcements. Employing the General-to-Specific (Gets) Autometrics methodology, we identify distinct behavioral responses between retail and institutional investors to SAD, noting a significant impact on retail trading volumes but not on institutional trading or bond returns. This discovery extends the understanding of behavioral finance within the context of bond markets, diverging from established findings in equity and Treasury markets. Additionally, our analysis delineates the influence of macroeconomic announcements on trading activities, offering new insights into the market's reaction to economic news. This study's findings contribute to the broader literature on market microstructure and behavioral finance, providing empirical evidence on the interplay between psychological factors and macroeconomic information flow within corporate bond markets. By addressing these specific aspects with rigorous econometric techniques, our research enhances the comprehension of trading dynamics in less transparent markets, offering valuable perspectives for academics, investors, risk managers, and policymakers. [ABSTRACT FROM AUTHOR]

Proponents of quantitative easing (QE) unconventional policy have rather overstated some evidence that structural time series models do not predict long‐term asset prices and yields as well as naive random walk forecasts, implying that predictions of price reversals cannot be profitable and, therefore, that QE effects are not transitory. Indeed, in this work we present evidence that naive models do not outperform structural vector autoregressive and Markov switching models in out‐of‐sample forecasting of corporate bond yields purchased by the European Central Bank, when the information set includes base money growth. It turns out that structural time series models provide additional information regarding the likelihood of price reversals, thus motivating investors to offset the effects of QE interventions if they perceive unconventional monetary policy regimes as temporary. [ABSTRACT FROM AUTHOR]

This study uses disaggregated establishment-level data to identify a firm's exposure to physical climate risk and examines investors' reaction to natural disasters in both the U.S. corporate bond and stock markets. We find that, when a firm is exposed to disasters, investors overreact by depressing the current bond and stock prices, causing future returns to be higher. However, firms with a strong environmental profile experience lower selling pressure on their bonds and stocks, although their fundamentals weakened following disasters. The evidence suggests that corporate investment in improving environmental profiles pays off when climate change risk is materialized. This paper was accepted by Colin Mayer, Special Section of Management Science on Business and Climate Change. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2021.4018. [ABSTRACT FROM AUTHOR]

With the aim of effectively preventing and controlling systemic risk, by stimulating the advancement of the green bond market, it is significant and imperative to help investors and policymakers adopt more effective measures, which will ensure them to maximize profit. We construct VAR, DCC-GARCH and Copula-CoVaR models, and study the spillover effect between the green bond market and traditional bond market from the three perspectives of mean spillover, volatility spillover and extreme risk spillover using the data on daily closing prices of green bond market and traditional bond market indices. The research findings of this paper are as follows: (1) There are three spillover effects of mean value, volatility and extreme risk among the green bond market, corporate bond market, enterprise bond market and conventional bond market. (2) From the perspective of mean spillover between markets, only the mean spillover between the conventional bond market and the green bond market is bidirectional, and there is the profoundest impact of spillover from the green bond market to the conventional bond market. (3) As far as the volatility spillover between markets is concerned, the volatility spillover between the three traditional bond market and the green bond markets are all positive. The volatility spillover between the conventional bond market and the green bond market is the largest, which is particularly obvious in the first half of 2018 and the first half of 2020. (4) In terms of inter-market extreme risk spillover, the risk spillover between the green bond market and the traditional bond market is positive. The green bond market contributes more to the risk spillover of the enterprise bond market, and it has a time-varying risk spillover effect on the traditional bond market. [ABSTRACT FROM AUTHOR]

Prior studies document the role social media information plays in the stock market and the important dissimilarities between the bond and stock markets. Bridging these two types of literature, we examine the role of social media information in the corporate bond market. Analyzing a broad sample of messages by Twitter individual users, posted just prior to earnings announcements, containing bond, credit risk, and fundamental information, we find that aggregate Twitter opinion (OPI) predicts upcoming announcement bond returns and changes in credit default swap (CDS) spreads, and is associated with future changes in bond yield spreads and credit ratings, thereby providing economically important information to the bond market. This interpretation is bolstered by results from a variety of cross-sectional analyses. Finally, we document an association between OPI and future changes in default risk, which casts light on the nature of the Twitter information underlying our findings. Overall, our findings demonstrate that Twitter appears to disseminate potentially economically important information to even the presumably sophisticated bond and CDS investors, as well as information intermediaries. This paper was accepted by Suraj Srinivasan, accounting. Funding: P. Mohanram acknowledges financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4589. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The green bond market helps to mobilize financial sources toward sustainable investments. Green bonds are similar to conventional bonds but are specifically designed to raise money to finance environmental projects. The feature of green bonds is the existence of greenium, or the lower yield compared to "conventional" bonds of the same risk. The relevance of the paper is underpinned by the mixed evidence on the existence of 'greenium', especially in corporate green bond markets; there has been limited research on the topic and a narrow focus on global, US, or Chinese green bond markets. Instead, the greenium in European debt markets remains underexplored. The objective of this study is to investigate the existence of greenium and its key determinants in European corporate debt capital markets, including the local markets of the United Kingdom (UK), France, Netherlands, and Germany. The sample included 3851 corporate bonds, both green and conventional ones, between 2007 and 2021 from 33 European countries. Linear regression was applied for the analysis. The results show that the climate corporate bonds in Europe are priced at a discount to the same-risk conventional corporate bonds. The magnitude of greenium is around 3 bps. Determinants of greenium include the presence of an ESG rating and belonging to the utility and financial industry. The remaining drivers of bond yields in the European corporate debt market are the credit quality (expressed by the level of credit rating), the coupon size, the bond tenor, the market liquidity, and macroeconomic variables (growth of gross domestic product and consumer price index). For the local corporate debt markets, our results are controversial. In all markets under consideration except for the UK and the Netherlands, we did not find sustainable evidence of greenium. The results of the research lead to a better understanding of the green bond market for investors, researchers, regulators, and potential issuing companies. [ABSTRACT FROM AUTHOR]

As an important information intermediary and external monitor, analysts have a serious impact on investors. In order to study the impact of analysts' attention and research reports' attention on corporate bond credit spreads, this paper selects non-financial companies issuing bonds in China A-share market from 2017 to 2020 as samples, establish a panel data regression model for empirical research. The research found that both analyst attention and research report attention have a significant impact on the credit spread of corporate bonds, and the higher the analyst attention and research report attention, the smaller the corporate bond credit spread, indicating that analysts play an effective role in supervising the default risk of listed companies. The research in this article expands the research on analysts' attention and research reports' attention, and the research on the factors affecting bond credit spreads. [ABSTRACT FROM AUTHOR]

In this paper, we conduct an empirical evaluation of currency hedging (FXH) strategies designed for Latin American investors managing portfolios of US assets with performance measured in their local currency. By analyzing the volatility and value-at-risk (VaR) of the hedged portfolio, our results reveal that FXH is inefficient in lowering portfolio risk when applied to underlying foreign risk-assets like equities and low credit quality corporate bonds. Conversely, a significant reduction in volatility is evident with FXH when the investments are in safer assets, such as high-grade government and corporate bonds. • We focused on Latin American investors that invest in assets denominated in USD. • We studied effectiveness of FX hedging strategies on reducing portfolio risk. • There are no optimal strategies when the portfolio is composed by risky assets. • Hedging currency risk is recommended for high-quality assets. [ABSTRACT FROM AUTHOR]

In a recent, widely covered press release, Larry Fink, chief executive of the world's largest asset management company, BlackRock, pledged significant resources toward developing sustainable investing, for example by offering [...]

The purpose of this article is to identify the key elements of market determinants of bond yield and the external borrowing environment. A reasonably integrated bond market is safer for both investors as well as issuers. It assesses the robustness of integration in corporate bond yields. Research method applied in this particular study includes the overview of theoretical concepts, literature review and analysis of secondary yield data. The results revealed significant differences between the sensitivity of coupon bonds and zero coupon bonds. It demonstrated stronger relationship between bond yield, money markets and external credit markets, respectively. Modern bond portfolios can be constructed focusing on factors beyond coupon rates, duration and credit rating, respectively. The outcome or further research could focus on examining alternate anchors against secured overnight short term financing rates. [ABSTRACT FROM AUTHOR]

This article reports the results of an experiment designed to assess the impact of last-sale trade reporting on the liquidity of BBB corporate bonds. Overall, adding transparency has either a neutral or a positive effect on liquidity. Increased transparency is not associated with greater trading volume. Except for very large trades, spreads on newly transparent bonds decline relative to bonds that experience no transparency change. However, we find no effect on spreads for very infrequently traded bonds. The observed decrease in transaction costs is consistent with investors' ability to negotiate better terms of trade once they have access to broader bond-pricing data. [ABSTRACT FROM AUTHOR]

This paper focuses on the macroeconomic factors that affect the corporate bond yield spread using time-series methods. We find that the PPI (industrial product price) and the CGPI (corporate goods price index) are significant at the 5% confidence level, and we accept the null hypothesis, which is positively correlated with the CGPI. This indicates that price changes are accepted by domestic producers for their output. The industrial cost increases with an increase in industrial product prices, which leads to a higher default risk; thus, investors ask for a higher risk premium, and the corporate bond yield spread increases. We find that the exchange rate is significant in the model. When the Chinese currency appreciates against the US dollar and the RMB is devalued, exports increase and the level of corporate risk decreases; thus, the corporate bond yield spread decreases. However, when the Chinese currency declines against the US dollar, the RMB appreciates, and corporate exports decline. Thus, corporate risk increases, and corporate bond yield spreads increase. The coefficient of VALUE is -0.003844, and it is significant at the 1% confidence level. However, its coefficient is smaller than that of the CGPI, and it has less impact on the corporate bond yield spread. We re-run the regression after adding a dummy variable for the PMI (purchasing managers' index) to the model, and we find that it is negatively correlated with the corporate bond yield spread. [ABSTRACT FROM AUTHOR]

We examine the relation between a firm's equity R2 and the pricing and design of its debt securities. We find that firms with less synchronous stock returns are associated with a higher cost of debt after controlling for default and liquidity risks. Bonds issued by low synchronicity issuers also experience larger price reactions to information signals provided by equity analysts. Further analysis demonstrates that lower synchronicity is associated with cross‐sectional variation in the use of call provisions and with split S&P and Moody's bond ratings. Contrary to conventional interpretation, these results suggest that low R2 reflects inferior information transparency and higher information risk. [ABSTRACT FROM AUTHOR]

I decompose inflation risk into (i) a component that is correlated with factors that determine investors' preferences and investment opportunities and real returns on real assets with risky cash flows (stocks, corporate bonds, real estate, commodities, etc.), and (ii) a residual inflation risk component. In equilibrium, only the first component earns a risk premium. Therefore, investors should avoid exposure to the residual component. All nominal bonds, including money-market accounts, have constant nominal cash flows, and thus their real returns are equally exposed to residual inflation risk. In contrast, inflation-protected bonds provide a means to avoid cash flow and residual inflation risk. Hence, every investor should put 100% of her wealth in real assets (inflation-protected bonds, stocks, corporate bonds, real estate, commodities, etc.) and finance every long/short position in nominal bonds with an equal amount of other nominal bonds or by borrowing/lending cash; that is, investors should hold a zero-investment portfolio of nominal bonds and cash. This paper was accepted by Neng Wang, finance. [ABSTRACT FROM AUTHOR]

From a small number of corporate bonds issued since the founding of the Banja Luka Stock Exchange to date, it is obvious that the domestic corporate bond market is in the initial stage of its development. The subject of this paper is to define the assumptions and limitations, i.e. possibilities of the development of the corporate bond market in the Republic of Srpska. The successful development of the bond market, in addition to the institutional and legal assumptions, is largely conditioned by the willingness of companies to emit bonds. On the other hand, it is the obligation and commitment of investors to invest in these securities. The aim of the research is to examine the potential supply and (potential) demand in next three years. The research was conducted using a two-part sur-vey. In the first part, managers in institutional investors in the domestic market were interviewed: investment funds, insurance companies and banks, 42 of them. In the second part, we examined the most significant joint-stock companies on the Banja Luka Stock Exchange, those that were part of the BIRS index and those that paid dividend, 66 of them. The results of the survey show the number of companies willing to finance their operations by issuing bonds and the number of investors willing to invest in these instruments. In addition, we will point to obstacles to the development and deepening of the market and the actual number of institutional investors willing to invest in corporate bonds.

The low beta anomaly is well documented for equity markets. However, the existence of such a factor in corporate bond markets is less explored. I find that European corporate bonds of firms with a low equity beta have higher risk‐adjusted returns, on average, than European corporate bonds of firms with a high equity beta. The results are economically and statistically significant as low beta credit portfolios improve the Sharpe ratio up to 30%. Moreover, even after accounting for transaction costs and by considering long‐only portfolios, the risk‐adjusted return remains substantial indicating practical implementability of the strategy for corporate bond investors. [ABSTRACT FROM AUTHOR]

PCA has been widely used in many fields to detect dominant principle components, but it ignores the information embedded in the remaining components. As a supplement to PCA, we propose the General Component Analysis (GCA). The inverse participation ratios (IPRs) are used to identify the global components (GCs) and localized components (LCs). The mean values of the IPRs derived from the shuffled data are taken as the natural threshold, which is exquisite and novel. In this paper, the Chinese corporate bond market is analyzed as an example. We propose a novel network method to divide time periods based on micro data, which performs better in capturing the time points when the market state switches. As a result, two periods have been obtained. There are two GCs in both periods, which are influenced by terms to maturity and ratings. Besides, there are 382 LCs in Period 1 and 166 LCs in Period 2. In the LC portfolios there are two interesting bond collections which are helpful to understand the thoughts of the investors. One is the supper AAA bond collection which is believed to have implicit governmental guarantees by the investors, and the other is the overcapacity industrial bond collection which is influenced by the supply-side reform led by the Chinese government. GCA is expected to be applied to other complex systems. [ABSTRACT FROM AUTHOR]

Capital flows in primary markets are key to the low-carbon transition, as capital raised can finance low or high-carbon assets. Yet, fund-level climate-related disclosures have focused on portfolio holdings, reducing the ability of investors to evaluate the impact of capital flows. In particular, as passive funds grow, there is a risk that capital is channelled into carbon-intensive assets through primary markets. To track carbon-intensive portfolio holdings and primary market transactions, and the role of passive funds within them, we construct a dataset of daily holdings for passive U.S. corporate bond exchange-traded funds (ETFs) from 2016 to 2021. We find that the carbon exposure and carbon intensity of ETF primary market transactions are associated with existing ETF portfolio holdings. We also find that the share of secondary market holdings and primary market transactions accounted for by passive ETFs is higher for fossil fuel bonds, and increases with bond-level carbon intensity. These findings indicate that the continued growth in passive funds could support carbon-intensive capital flows. [ABSTRACT FROM AUTHOR]

Copyright of Acta Economica is the property of University of Banja Luka, Faculty of Economics and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper provides a comprehensive examination of money flows in corporate bond funds, which, although less researched, represent an important setting to study investor behavior. Based on a large sample of corporate bond funds over 1991-2014, we first show that flows are sensitive to both fund performance and macroeconomic conditions, but unlike equity funds, the flow-performance relationship is not convex. Then, we find that investor flows can predict fund performance. More importantly, the predictability cannot be explained by return momentum or price pressure but is subsumed by performance persistence. Finally, an examination of idiosyncratic flows reveals little evidence that fund investors use finer-than-public information. [ABSTRACT FROM AUTHOR]

For decades, corporate bonds primarily traded in an opaque environment. Quotations, which indicate prices at which dealers are willing to transact, were available only to market professionals, most often by telephone. Prices at which bond transactions were completed were not made public. The U.S. corporate bond market became much more transparent with the introduction of the Transaction Reporting and Compliance Engine (TRACE) in July 2002. Beginning that date, bond dealers were required to report all trades in publicly issued corporate bonds to the National Association of Security Dealers, which in turn made transaction data available to the public. In this paper, we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market. We review how TRACE has affected the costs that corporate bond investors paid to bond dealers for their transactions. We canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market. [ABSTRACT FROM AUTHOR]

Abstract: In this article we introduce a scoring system (EMS Model) for Emerging Corporate Bonds. The scoring system provides an empirically based tool for the investor to use in making relative value determinations. The EMS Model is an enhanced version of the statistically proven Z-Score model. Unlike the original Z-Score model, our approach can be applied to nonmanufacturing companies, and manufacturers, and is relevant for privately held and publicly owned firms.The adjusted EMS Model incorporates the particular credit characteristics of emerging markets companies, and is best suited for assessing relative value among emerging markets credits. The model combines fundamental credit analysis and rigorous benchmarks together with analyst-enhanced assessments to reach a modified rating, which can then be compared to agency ratings (if any) and market levels. We have included a summary of Mexican companies for which we have applied the EMS Model. We have included in this a description of Mexican company credits, first from prior to the Mexican crisis (1994) then followed, in some cases, to a more recent date. [Copyright &y& Elsevier]

In this paper, we document how, in the wake of monetary unification, the markets for euro-area sovereign and private-sector bonds have become increasingly integrated. Issuers and investors alike have come to regard the euro-area bond market as a single one. Primary and secondary bond markets have become increasingly integrated on a pan-European scale. Issuance of corporate bonds has taken off on an unprecedented scale in continental Europe. In the process, both investors and issuers have reaped the considerable benefits afforded by greater competition in the underwriting of private bonds and auctioning of public ones, and by the greater liquidity of secondary markets. Bond yields have converged dramatically in the transition to EMU. The persistence of small and variable yield differentials for sovereign debt under EMU indicates that euro-area bonds are still not perfect substitutes. However, to a large extent, this does not reflect persistent market segmentation but rather small differentials in fundamental risk. Liquidity differences play at most a minor role, and this role appears to arise partly from their interaction with fundamental risk. The challenges still lying ahead are numerous. They include: the imbalance between the German-dominated futures and the underlying cash market; the vulnerability of the cash markets' prices to free-riding and manipulation by large financial institutions; the possibility of joint bond issuance by euro-area countries; the integration of clearing and settlement systems in the euro-area bond market; and the participation of new accession countries' issuers in this market. [ABSTRACT FROM PUBLISHER]

We study the implications of imperfect information for term structures of credit spreads on corporate bonds. We suppose that bond investors cannot observe the issuer's assets directly, and receive instead only periodic and imperfect accounting reports. For a setting in which the assets of the firm are a geometric Brownian motion until informed equityholders optimally liquidate, we derive the conditional distribution of the assets, given accounting data and survivorship. Contrary to the perfect‐information case, there exists a default‐arrival intensity process. That intensity is calculated in terms of the conditional distribution of assets. Credit yield spreads are characterized in terms of accounting information. Generalizations are provided. [ABSTRACT FROM AUTHOR]