Common pitfalls in the evaluation of corporate bond strategies

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

 

Cesare

Paper Title: Common pitfalls in the evaluation of corporate bond strategies
 
Speaker:  Cesare Robotti, The University of Warwick
 
Time and Date: 12-1 pm, Wednesday 13 March 2024 (AEDT)
 
Location: CB08.08.002, Level 8, Building 8, University of Technology Sydney, Australia (Map of campus)

Abstract: We argue that the documented large abnormal returns to investors from corporate bond anomalies such as return reversals and momentum mainly stem from ignoring market microstructure noise in transaction-based bond prices and relying on ad hoc return winsorization. To address these issues, we construct bond data that is largely free of microstructure noise and closely mimics industry grade quote data. We revisit prior findings in the literature and provide conclusive evidence that most anomalies, once properly constructed, generate negligible average returns and alphas. Finally, we show that the considered factors (and their underlying signals) are not related to average bond returns.

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