The Short-Term Corporate Bond Anomaly
39 Pages Posted: 3 Mar 2008 Last revised: 16 Aug 2009
Date Written: January 14, 2009
This paper finds that common risk factors significantly underestimate the returns on corporate bonds with a short maturity. A substantial portion of short-term corporate bond returns is independent of risk premiums associated with market risk, term and default risk, yield curve dynamics, liquidity risk and premiums associated with macro-economic variables. Comparable evidence of the short-term corporate bond anomaly also shows up in portfolios of corporate bond mutual funds, indicating that the anomaly withstands important practical issues, such as short-selling restrictions, transaction costs, and illiquidity.
Keywords: asset pricing, corporate bond returns, factor models, mutual funds
JEL Classification: E40, G10, G12, G14, G30
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