Risk Factors Empirical Analysis In The Cross-Section Of Chinese Corporate Bonds

The bond market is a vital part of the financial system.Bonds can be regarded as a kind of marketable securities,with financing,funds flow-oriented and macro-control functions.At the same time,they can also prevent financial risks.Today,foreign bond markets,such as the U.S.bond market,have matured,and the bond market has become the largest capital market in the United States.China's corporate bonds are approved by the China Securities Regulatory Commission.The issuers are mostly large and medium-sized companies.The volume and turnover of corporate bonds are increasing.Market factors will become the main determinant of the development of the corporate bond market.However,China's research on corporate bonds is still in its infancy.Domestic scholars' research on bonds mainly focuses on the pricing mechanism of bonds,bond credit spreads and liquidity.The research objects are mostly government bonds,which explain the benefits of corporate bonds.Cross-section studies of common risk factors are scarce.This article aims to supplement by identifying common risk factors that can explain differences in corporate bond cross-sections.Early research on corporate bond returns often relied on long-standing stock and macroeconomic factors to predict bond returns over the same period or in the future,such as the classic Fama-French three factors.However,these factors are usually composed of stock market data or macroeconomic variables,so their ability to predict the cross section of bond returns is limited.When these existing models are used to explain corporate bond returns,the empirical performance is unsatisfactory.This article selects the transaction data of 441 corporate bonds on the Shanghai-Shenzhen Stock Exchange from October 2010 to October 2018,and starts from the cross-section of individual bond returns to find out the broad risk characteristics of corporate bonds,thereby introducing new risk factors.Three commonly used measurement methods are used to construct the three bond risk factors:downside risk,credit risk and illiquidity risk.At the same time,macroeconomic variables and stock market factors are introduced for comparison,and the four factors that have the most significant effect on the excess yield of corporate bonds are screened.Fama-MacBeth cross-sectional regression is used to test the predictive ability of these factors on the future returns of corporate bonds.Then analyzing whether the stock and the macro market factors can explain these three bond risk factors.Finally,the effect of the three factors on corporate bond returns is studied by establishing a VAR model.The results show that the three factors proposed in this paper are economically and statistically significant,which cannot be explained by existing stock and macroeconomic variables.Compared with traditional factors based on stock and macroeconomic variables,the three risk factors with bond market factors constructed in this paper are better than other factors considered in the literature.