This paper investigates predictions of structural credit risk models for interest rate sensitivities of corporate bond returns. Recent evidence has shown that the existing models fail to capture this sensitivity (a stylized fact referred to as the interest rate sensitivity puzzle). We propose...

What drives short-term credit spreads: credit risk, liquidity risk, or both? Despite a large empirical literature on corporate yield spreads, very few studies have examined this important question. Using a novel data set of secondary market transaction prices of Chinese commercial papers, we...

There is no consensus on whether macroeconomic fundamentals have any predictive power for bond risk premia, either unconditionally or conditionally over bond yields. Using Adaptive Group LASSO, a machine learning algorithm, we are able to construct a new, parsimonious macro variable that is...

Empirical studies of structural credit risk models so far are often based on calibration, rolling estimation, or regressions. This paper proposes a GMM-based method that allows us to both consistently estimate the model parameters and test whether all the restrictions of the model are satisfied....

Recently, there has been a fast-growing literature on the determinants of corporate bond returns, in particular, the driving force of cross-sectional return variation. In this review, we first survey recent empirical studies on this important topic. We discuss cross-sectional evidence as well as...