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Returns and Volatility of Low-Grade Bonds 1977-1989 (Reprint 005)

Author

Listed:
  • Marshall E. Blume
  • Donald B. Keim
  • Sandeep A. Patel
Abstract
This paper examines the risks and returns of long-term low-grade bonds for the period 1977-1989. We find: (1) Low-grade bonds realized higher returns than higher-grade bonds and lower returns than common stocks. Also, low-grade bonds exhibited less volatility than higher-grade bonds due to their call features and high coupons. (2) There is no relation between the age of low-grade bonds and their realized returns. Cyclical factors explain much of the observed relation between default rates and bond age. (3) Low-grade bonds behave like both bonds and stocks. Despite this complexity, there is no evidence that low-grade bonds are systematically over- or under-priced.

Suggested Citation

  • Marshall E. Blume & Donald B. Keim & Sandeep A. Patel, "undated". "Returns and Volatility of Low-Grade Bonds 1977-1989 (Reprint 005)," Rodney L. White Center for Financial Research Working Papers 24-90, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:24-90
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