This paper studies whether the commonly analyzed equity return predictors also predict corporate bond returns. Bond markets do price risk, but are also susceptible to delayed information transmission relative to equities. Firm size and profitability are negatively priced while idiosyncratic volatility is positively priced, suggesting that large firms, more profitable firms and relatively less volatile firms are more attractive to bond investors, thus requiring lower returns. Consistent with a relatively sophisticated institutional clientele, bonds are efficiently priced in that none of the behaviorally-motivated variables provide profitable trading strategies after accounting for transactions costs, though some risk-based variables continue to do so.
Journal of Financial and Quantitative Analysis
Cambridge University Press (CUP): HSS Journals
CHORDIA, Tarun; GOYAL, Amit; NOZOWA, Yoshio; SUBRAHMANYAM, Avanidhar; and TONG, Qing.
Are capital market anomalies common to equity and corporate bond markets?. (2017). Journal of Financial and Quantitative Analysis. 52, (4), 1301-1342. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5303
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