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

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. •This paper studies the most important uncertainty measures for corporate bonds.•40 corporate bond portfolios from 1973 to 2020 are used.•Tax policy uncertainty is the most significant uncertainty measure.•Risk prices implied by tax policy uncertainty are consistent across portfolio groups.•Other praised measures are not significant in our empirical setting.