Corporate bonds carry a premium of extreme illiquidity (EIL). This premium permeates all rating categories and heightens in times of stress and periods with high uncertainty. EIL has predictive power in the cross-section for future returns up to at least a one-year horizon. Active investors like...

In this paper, we investigate the predictability of corporate bond excess returns using a comprehensive data sample for the period from January 1973 to December 2010. We find that corporate bond returns are more predictable than stock returns, and the predictability tends to be higher for...