Excess Volatility of Corporate Bonds

  title={Excess Volatility of Corporate Bonds},
  author={J Bao and Jun Pan},
This paper examines the connection among corporate bonds, stocks, and Treasury bonds under the Merton model with stochastic interest rate, focusing in particular on the volatility of corporate bonds and its connection to the equity volatility of the same firm and the Treasury bond volatility. For a broad cross-section of corporate bonds from 2002 through 2006, empirical measures of bond volatility are constructed using bond returns over daily, weekly, and monthly horizons. Comparing the… CONTINUE READING


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