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Publications
Publications
  • 2012
  • Working Paper
  • HBS Working Paper Series

Issuer Quality and Corporate Bond Returns

By: Robin Greenwood and Samuel G. Hanson
  • Format:Print
  • | Language:English
  • | Pages:54
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Abstract

We show that the credit quality of corporate debt issuers deteriorates during credit booms, and that this deterioration forecasts low excess returns to corporate bondholders. The key insight is that changes in the pricing of credit risk disproportionately affect the financing costs faced by low quality firms, so the debt issuance of low quality firms is particularly useful for forecasting bond returns. We show that a significant decline in issuer quality is a more reliable signal of credit market overheating than rapid aggregate credit growth. We use these findings to investigate the forces driving time-variation in expected corporate bond returns.

Keywords

Price; Credit; Risk and Uncertainty; Investment Return; Forecasting and Prediction; Bonds; Market Design; Cost of Capital; Mathematical Methods; System Shocks

Citation

Greenwood, Robin, and Samuel G. Hanson. "Issuer Quality and Corporate Bond Returns." Harvard Business School Working Paper, No. 11-065, January 2011. (Revised September 2012, Internet Appendix Here.)
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About The Authors

Robin Greenwood

Finance
→More Publications

Samuel G. Hanson

Finance
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More from the Authors

    • April 2022
    • Journal of Finance

    Predictable Financial Crises

    By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
    • 2022
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    Stock Market Stimulus

    By: Robin Greenwood, Toomas Laarits and Jeffrey Wurgler
    • January 2022 (Revised January 2022)
    • Faculty Research

    The Impact Developers Fund

    By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
More from the Authors
  • Predictable Financial Crises By: Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen
  • Stock Market Stimulus By: Robin Greenwood, Toomas Laarits and Jeffrey Wurgler
  • The Impact Developers Fund By: Malcolm Baker, Samuel Gregory Hanson, Jonathan Wallen and Zach Komes
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