Investment returns and risk premia for Belgian corporate bonds (1832-2010)

The Brussels stock exchange was one of the top ten most important stock exchanges in the world in the 19th and early 20th centuries. Companies from all sectors (railways, coal mines, zinc companies, metal, glass, banks, electricity companies etc.) were listed on it. Moreover, the Brussels Stock Exchange was very internationally oriented before the First World War with many shares, government bonds and corporate bonds from goverments and companies all over the world (or Belgian companies operating abroad).We examine the returns of all the Brussels Stock Exchange listed Belgian corporate bonds for the period 1832-2010 using quotes, numbers and all the characteristics of these corporate bonds (interest, valuation, the duration, the issuing price, the IPO price on the stock exchange, additional conditions (call / put), and reimbursement conditions (amount, repayment facilities). At the same time we calculate the risk premium and compare it to the equity premium. Our sample includes 1270 corporate bonds.Because we have such a unique and very long time series it will allow us to make valid econometric conclusions (given the volatility).This research is important both for investors and companies. Investors have many opportunities for investments. A wide range of alternatives is available with perhaps the most famous among them investments in equities, government bonds or holding cash. In the international literature, these three are traditionally the subject of many inquiries. But there is another investment opportunity, viz. corporate bonds. Our research will inform investors exactly on the difference between such investments. The question can also be viewed from a different perspective, particularly from the financial policy of a company. Is it without importance for a company to finance her activities with share capital or bonds or is one of them more attractive? This seems to be an important question for financial management. Lacking international studies, our research can help in providing a detailed account on the risk premium.

Keywords:CAPITAL INVESTMENT ANALYSIS, THEORETICAL STUDY, FINANCE, STOCK EXCHANGE

Disciplines:Applied economics, Economic history, Macroeconomics and monetary economics, Microeconomics, Tourism