New model accurately forecasts corporate bond volatility changes over time.
The model in the article predicts how corporate bond returns change based on credit spreads, duration, and market share. Compared to using credit ratings, the model's residuals match a standard normal distribution better. It accurately forecasts changes in bond volatility over time and shows differences in volatility among bonds with different ratings, industries, and maturities. The focus is on U.S. investment grade bonds, but there are also results for high yield bonds.