Discussion

Extract

As the authors, Donald L. Tuttle and William L. Wilbur, indicate in footnote 1 of their article, “A Multivariate Time-Series Investigation of Annual Returns on Highest Grade Corporate Bonds,” the equations tested in this paper seem to me to be ad hoc. The problem is not that I think the authors should have estimated a general equilibrium model of the economy, but rather that they have not provided a satisfactory explanation of the single equation they have tested. The use of a technique to choose among alternative variables on the basis of their ability to shrink the coefficient of multiple correlation could be taken as further evidence of the absence of a well-articulated theoretical relationship explaining annual returns on corporate bonds.