Returns and Volatility of Low-Grade Bonds 1977-1989

Authors

  • Marshall E. Blume University of Pennsylvania
  • Donald B. Keim University of Pennsylvania
  • Sandeep A. Patel Texas Christian University

DOI:

https://doi.org/10.1016/1057-0810(91)90040-6

Abstract

This paper examines the risks and returns of long-term low-grade bonds for the period 1977-1989. We find: (1) low-grade bonds realized higher returns than higher-grade bonds and lower returns than common stocks, and low-grade bonds exhibited less volatility than higher-grade bonds due to their call features and high coupons; (2) there is no relation between the age of low-grade bonds and their realized returns; cyclical factors explain much of the observed relation between default rates and bond age; and (3) low-grade bonds behave like both bonds and stocks. Despite this complexity there is no evidence that low-grade bonds are systematically over- or under-priced. The Journal of Finance, Vol. XLVI, No. 1 (March 1991), pp. 49-74. (Reprinted with permission of The Journal of Finance.)

Published

1991-12-30

Issue

Vol. 1 No. 2 (1991): Financial Services Review

Section

Abstracts of Articles on Individual Financial Management

License

Copyright (c) 1991 JAI Press Inc.

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How to Cite

Returns and Volatility of Low-Grade Bonds 1977-1989. (1991). Financial Services Review, 1(2), 180. https://doi.org/10.1016/1057-0810(91)90040-6