PT  - JOURNAL ARTICLE
AU  - Xinyuan Tao
AU  - Bo Wang
AU  - Junbo Wang
AU  - Chunchi Wu
TI  - Economic Policy Uncertainty and the Cross-Section of Corporate Bond Returns
AID  - 10.3905/jfi.2022.1.134
DP  - 2022 Jun 30
TA  - The Journal of Fixed Income
PG  - 6--44
VI  - 32
IP  - 1
4099  - https://pm-research.com/content/32/1/6.short
4100  - https://pm-research.com/content/32/1/6.full
AB  - This article finds that economic policy uncertainty (EPU) is a systematic risk factor priced in the cross-section of corporate bonds. Bonds with high EPU beta have low expected returns, and this negative premium is robust to controlling for conventional risk factors, bond characteristics, and macroeconomic conditions and uncertainty. The effect of policy risk is pervasive, stronger for speculative-grade bonds, and priced in both US and foreign markets. The EPU risk effect is greater for firms that have higher earnings exposure to policy uncertainty, dependence on external financing, and effective tax rates; those with lower pre-tax interest coverage; and those that operate in regulation-intensive industries.