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Monetary Policy and Corporate Bond Returns

Kontonikas, A and Maio, P and Zekaite, Z (2017) Monetary Policy and Corporate Bond Returns. Working Paper. Essex Finance Centre Working Papers, Colchester.

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Abstract

We investigate the impact of monetary policy shocks (the surprise change in the Fed Funds rate (FFR)) on excess corporate bonds returns. We obtain a significant negative response of bond returns to FFR shocks. This effect is especially strong in the period before the 2007- 09 financial crisis and for bonds with longer maturity and lower rating. We show that the largest portion of this response is related to higher expected excess bond returns, especially term premia news. Therefore, the discount-rate channel represents an important mechanism through which monetary policy affects corporate bonds. However, the financial crisis has attenuated this effect.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Corporate Bond Market, Variance Decomposition, Monetary Policy
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 30 Oct 2017 11:55
Last Modified: 04 Dec 2017 22:27
URI: http://repository.essex.ac.uk/id/eprint/20571

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