An Empirical Analysis of Segmented Pricing of Bond Systematic Risk

This research investigates the existence of segmentation in the market for fixed-income securities. Evidence is found of higher yield spreads being required for non-distressed bonds making larger contributions to the risk of pure debt portfolios over the 2003–2011 period. Abnormal returns existed over that time interval for diversified investors taking long (short) positions on such bonds with higher (lower) betas measured against an index of strictly fixed-income securities.