Abstract

Factors related to carry, duration, equity momentum, and the term structure are the most important risk factors in corporate bond markets. From a large set of factor candidates, we condense an optimal model with a two-step approach. First, we filter out factors that do not systematically move bond prices. Second, we use a Bayesian model selection approach to determine the optimal, parsimonious model. Many prominent factors do not move prices or are redundant. We document the new model’s good performance compared to that of existing models in time-series and cross-sectional tests and analyze the economic drivers of the factors.

This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://dbpia.nl.go.kr/pages/standard-publication-reuse-rights)
Editor: Zhiguo He
Zhiguo He
Editor
Search for other works by this author on:

You do not currently have access to this article.