Using implied-CDS risk premium measures, we find that these variables have higher explanatory power for cross-sectional bond returns than the traditional default spread and ratings. The positive effect of the credit risk premium (CRP) factor on expected returns is pervasive, stronger for...

This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond-trading model, we show that the decline in market risk tolerance and information accuracy leads to trading loss under downside conditions. Our empirical analysis indicates that...