The Cross-section of Expected Corporate Bond Returns: Betas or Characteristics?

William R. Gebhardt, Søren Hvidkjær, Bhaskaran Swaminathan

Research output: Contribution to journalJournal articleResearchpeer-review


This paper finds that default betas are significantly related to the cross-section of average bond returns even after controlling for characteristics such as duration, ratings, and yield-to-maturity. Among characteristics, only yield-to-maturity is significantly related to average bond returns after controlling for default and term betas. The default and term factors are able to price the returns of beta-sorted portfolios better than they do the returns of yield-sorted portfolios. The magnitude of the ex ante Sharpe ratio generated by yield-sorted portfolios suggests non-risk-based explanations. Overall, given the elusive nature of systematic risk in empirical asset pricing, the central finding of our paper is that systematic risk matters for corporate bonds.
Original languageEnglish
JournalJournal of Financial Economics
Issue number1
Pages (from-to)85-114
Number of pages30
Publication statusPublished - 2005
Externally publishedYes


  • Asset pricing
  • Betas
  • Characteristics
  • Corporate bond returns
  • Yields

Cite this