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http://dx.doi.org/10.14400/JDC.2018.16.12.175

The effect of corporate risk on Korean bond market  

Choe, Yong-Shik (Dep., Hansung University)
Choi, Jong-Yoon (Able Hyundai Hotel)
Publication Information
Journal of Digital Convergence / v.16, no.12, 2018 , pp. 175-183 More about this Journal
Abstract
This study analyzes determinants of bond returns in terms of systematic risk versus idiosyncratic risk by examining relationship among those factors. First we examined the cross-sectional determinants of corporate bond returns with Korean bond market data from 2001 to 2014. This paper uses term factor and default factor for systematic risk, and duration factor and credit rating factor for idiosyncratic risk. The empirical result shows that systematic risk can explain cross-sectional differences of bond returns rather than idiosyncratic risk which is the same result in advanced markets(US or Europe). This result is different from the previous Korean studies which showed that idiosyncratic risk is more important than systematic risk in Korean bond market. The reason for the different result may be the longer sample period which includes the most recent period. It is insisted that Korean bond market is getting more synchronized with the advanced bond market. In conclusion, this empirical result implies that Korean bond portfolio managers should focus on systematic risk, which is contrary to current system in Korean asset management industry.
Keywords
Systematic risk; Idiosyncratic risk; Bond return; Term factor; Default factor; Liquidity;
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Times Cited By KSCI : 1  (Citation Analysis)
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