This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond … bond excess returns using a portfolio-level analysis and Fama-MacBeth regressions. We find that downside risk is a strong … and robust predictor for future bond returns. In addition, due to the higher proportion of abnormal transactions in the …

realized defaults. Furthermore, it predicts future equity and corporate bond returns, even after controlling for many existing …

changes in equity mean returns and volatility to produce higher estimated default probabilities, faster, than both benchmark …