Determinants of European Corporate Bond Funds’ Risk Premiums: A comparative analysis of Financial and Economic models

Abstract

This thesis explores the determinants of risk premiums in European corporate bond funds through a comparative analysis of financial and economic models. Making use of an extensive data set and panel data analysis, this study evaluates the influence of both financial factors and macroeconomic variables on the risk premiums of selected bond funds. The financial model applied is the Fama and French Six Factor model, while the economic model encompasses variables like GDP growth, exchange rates, inflation, etc. Econometric testing and forecasting provide significant insights into the dynamics driving risk premiums. The findings underscore the pivotal role of macroeconomic conditions in shaping investor perceptions and market outcomes. These results offer valuable guidance for investors and policymakers aiming to enhance market efficiency and stability in the European corporate bond market.