Cross-sectional Examination of the Corporate Bond Market Performance - The Rise of the Momentum and Contrarian Unidentified Factor Mimicking Corporate Bond Portfolios!
19 Pages Posted: 13 Oct 2020 Last revised: 18 Nov 2020
Date Written: September 8, 2020
We examine momentum and reversal anomalies in corporate bond returns at the firm-level employing a novel dataset, SoKat Credit, comprising bonds of 323 of the largest and liquid companies over the period from 2002 to 2020. Our study documents significant short-term reversal in the cross-sectional of corporate bond returns concentrated at the one week interval with annualized returns on the zero investment long-short portfolio of 9.9%. We also document company-level momentum spillover effect into corporate bond returns when sorting on past equity returns, that is, our “bond-stock” strategy, which delivers annualized return of 5.0% is statistically significant and robust baring the usual suspects of caveats.
Keywords: Corporate Bond, Momentum, Short-term Reversal
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