Events

Professor Zhaogang Song
Professor of Finance
Carey Business School
Johns Hopkins University

We document key facts about the inflation risk exposure of corporate bond returns within standard portfolio frameworks over the period 2004-2022. First, while inflation betas of standard bond excess returns (relative to T-bills) are, on average, negative, inflation betas of credit excess returns—measured relative to durationmatched Treasurys—are positive across nearly all bonds. Second, the cross-sectional variation in the inflation beta of corporate bond returns is primarily driven by that of credit excess returns, with higher-default-risk bonds exhibiting more pronounced positive inflation betas. Third, inflation beta affects future bond returns positively in the cross-section, and this effect is driven entirely by credit excess returns. Finally, firms with higher bond inflation betas also have higher stock inflation betas.