Reaching for Yield and the Cross Section of Bond Returns

• 成果类型: Article
• 署名作者: Chen, Qianwen; Choi, Jaewon
• 署名单位: Bank of Communications; University of Illinois System; University of Illinois Urbana-Champaign; Seoul National University (SNU)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4920
• 发表日期: 2024
• 页码: 5226-5245
• 关键词: Reaching for yield; Cross-sectional corporate bond returns; Credit rating

摘要

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.