Modeling Corporate Bond Returns

Bryan Kelly, Diogo Palhares, Seth Pruitt

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We propose a conditional factor model for corporate bond returns with five factors and time-varying factor loadings. We have three main empirical findings. First, our factor model excels in describing the risks and returns of corporate bonds, improving over previously proposed models in the literature by a large margin. Second, our model recommends a systematic bond investment portfolio whose high out-of-sample Sharpe ratio suggests that the credit risk premium is notably larger than previously estimated. Third, we find closer integration between debt and equity markets than found in prior literature.

Original languageEnglish (US)
Pages (from-to)1967-2008
Number of pages42
JournalJournal of Finance
Issue number4
StatePublished - Aug 2023

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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