Which uncertainty measures matter for the cross-section of corporate bond returns? Evidence from the U.S. during 1973–2020

Abstract

I examine which economic uncertainty measures matter for the cross-section of corporate bond returns using 40 corporate bond portfolios for a long period from 1973 to 2020. Out of a comprehensive list of 24 economic uncertainty measures, I find that tax policy uncertainty is the most significant both economically and statistically. I also find that measures that are documented as significantly priced factors – VIX, EPU, and economic uncertainty measures (Jurado et al., 2015) – are not robust to the long sample period and my empirical approach to rigorously estimate uncertainty shocks.