Implementable Corporate Bond Portfolios: Investing Across Mandates

Abstract

We propose a framework for implementable corporate bond portfolios that models individual bond weights across thousands of securities using bond-specific characteristics while incorporating short-sale constraints and transaction costs directly into the optimization. The approach handles a high-dimensional bonds-characteristics space without sacrificing interpretability or implementability and allows us to quantify the gains from investing across mandates at short and long horizons. Using comprehensive U.S. corporate bond data, we find that strategies investing across mandates generate large and robust certainty-equivalent gains in and out of sample with realistic turnover and leverage. Portfolios rebalance around mandate-triggering events, supplying liquidity to constrained investors.

Keywords: JEL-Classification: G11, G12, C13, C58 Keywords: corporate bonds, empirical portfolio choice, characteristics

JEL Classification: G11, G12, C58, C13