Research On The Impact Of Tail Risk On Income Of My Country’s Corporate Bonds

Corporate bonds entered the Chinese capital market in 2007,and after 14 years of development,it has become the second largest bond variety in China.Compared with the stock market,my country’s bond market has poor liquidity,lower transaction frequency,and greater information uncertainty.Therefore,bond market investors tend to make decisions based on the worst-case scenario and are more sensitive to tail risks.In an environment of economic downturn and the gradual increase in the scale of defaults,investors are gradually paying more attentions to tail risks.This thesis mainly studies the relationship between the tail risk and the expected returns of Chinese corporate bonds.Selecting samples of all corporate bonds on the Shanghai and Shenzhen stock exchanges from 2008 to 2019 as sample data,this thesis examines the impact of tail risk on corporate bond yields,constructs a tail risk measure,MDM,and constructs a tail risk pricing factor based on this measure.First,this article finds that the expected yield of corporate bonds is positively correlated with tail risk.The portfolio obtained by longing high-tail risk group bonds and shorting low-tail risk group bonds has an average monthly excess return of 0.67%.Secondly,after controlling the credit rating,maturity,scale,and liquidity risks,the positive correlation is still established.Secondly,this paper performs a FamaMac Beth cross-sectional regression of individual bonds,which supports the conclusion that the expected yield is positively correlated with tail risk,and concludes that the average monthly tail risk premium of corporate bonds is 83 basis points.Finally,based on the two-factor bond pricing model of Fama and French(1993),this thesis adds market risk factor and tail risk factor,and proposes a four-factor pricing model for my country’s corporate bonds.Time series regression shows that tail risk factors have a significant marginal contribution to the explanation of corporate bond returns,and the four-factor pricing model has a strong explanatory power for my country’s corporate bond yields.This article provides an effective investment strategy for corporate bond investors.