A Quantitative Analysis of Risk Premia in the Corporate Bond Market

Round 1

Reviewer 1 Report

Dear author, 

Ref: jrfm-659751

A quantitative analysis of risk premia in the corporate bond market

 

Summary

The purpose of this paper is to investigate the effects of the unconventional monetary policy of the European central bank on the corporate bond markets. The idea is a very novel and this empirical analysis focuses on the important theme for European economy. This paper uses the affine framework to decompose the corporate bond spread into the two part, the first is the compensation required by investors and the second is expected default losses.

However, I think the author should modify in any points for literature surveys, paper construction, and the paper style.

 

Comments and Suggestion

 

(1) Literature surveys

This paper is related to the term structure of interest rates model, so I think you should add some previous literatures of interest rates to the introduction section to be more fruitful discussion.

I suggest that you cite the following literatures:

Ishii, H. (2019). “Forecasting term structure of interest rates in Japan”, International Journal of Financial Studies, Volume 7, Issue 7, pp.39.

⇒ This paper is the most recent paper about the term structure of interest rates.

Vasicek, O. (1977). “An equilibrium characterization of the term structure”, Journal of Financial Economics, Volume 5, pp.177-188.

⇒ This paper is a pioneering research of the affine framework.

Although you consider the CIR process, you don’t cite Cox et al. (1985)’s paper. You should check it again.

 

(2) Style of the figures

There are some figures in this paper, but the fonts of the words in figures are very small. Readers can not read these words clearly. Moreover, the words in figures in printed version is more unclear than PDF. The author should check the fonts of these words and the sentence in the figures. Can you read it ?

 

(3) Writing 1

Writing is very poor, so I suggest that you should take a proofreading by English native. Moreover, the author’s sentence is very long. The author should write the sentence in the paper simply.

For example, the following sentence is an sentence in abstract.

 

“We use the model to understand whether the significant reduction in corporate bond spreads observed since the launch of the CSPP (Corporate Sector Purchase Programme) is attributable more to the fact that expansionary monetary policy measures tend to increase the risk appetite of investors and compress risk premia, or to the ability of unconventional measures to reduce expected default losses by improving investors’ expectations about the economic and financial conditions of issuers.”

 

In abstract, the author should explain more concisely.

There are other long sentences in the main text, please reconsider the sentences.

 

(4) Writing 2

For each figure, the author’s explanation is very poorly written. Readers will not be able to understand what we can learn from this paper. If you should add more explanation and if the figures are not important, you delete the figures. The paper has many figures, if possible, the author keeps the figures within 10 figures in the paper.

 

Best regards,

Reviewer 

Comments for author File: Comments.pdf

Author Response

Dear Referee,

thank you very much for your comments and suggestions on my paper. I agree with all of them. Please see the attachement to find a detailed description of how I addressed the comments. Note that I refer to the comments by the numbers they are given in the report.

Author Response File: Author Response.pdf

Reviewer 2 Report

I find this paper a very well prepared study, on currently relevant issues from bond market and monetary policy point of view. Although the paper is very technical by nature (and mathematised), Author presents and discusses the assumptions in clear and friendly way. Congratulations!

My only comment is on references – I do not know why for some journal papers Author provides full citation (Vol. Iss. And pages), whereas for others (the majority, in fact) this information is missing. Please complete the citations.

Author Response

Dear Referee,

thank you very much for your comments and suggestions on my paper. I have completed the citations in the references as you kindly and rightly suggested.

Round 2

Reviewer 1 Report

Dear  Author, 

I confirmed your revised paper.

 

Although you investigated the relationship between the effect of the unconventional monetary policy and the risk premium in this paper, as a future research direction, I recommend that you  focus on analyzing the  risk premium of the corporate bond in the period when European sovereign debt crisis occurs. It is an important topic in this field. 

 

Best Regards,

Reviewer