Corporate Bonds and the Credit Premium: A Distinct Asset Class with a Long History
Year: 2024
Type: article
Abstract: This article presents and interprets long-run evidence on corporate bonds since the 1860s for both the United States and United Kingdom. Even very high-quality corporate bonds have provided a significant credit risk premium, and the reward from buying high-yield (or junk) bonds is appreciably higher. Yield spreads of corporates over government bonds incorporate this premium but are not a measure of the expected premium because they also encapsulate expected default losses. This study reports on default and recovery rates over the long haul and reviews the determinants of yield spreads and default rates. The authors present evidence showing that corporate bonds are a distinct asset class. Finally, it examines whether factors and other return regularities can help boost corporate bond returns and provide positive premia.
Authors: Paul Marsh, Elroy Dimson, Mike Staunton
Institutions: London Business School, University of Cambridge
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4403982542