Momentum in Corporate Bond Returns

41 Pages Posted: 4 Jun 2010 Last revised: 14 Sep 2014

See all articles by Gergana Jostova

Gergana Jostova

George Washington University - Department of Finance

Stanislava (Stas) Nikolova

University of Nebraska - Lincoln

Alexander Philipov

George Mason University - Department of Finance

Christof W. Stahel

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: September 26, 2010

Abstract

This paper finds significant price momentum in US corporate bonds. The analysis is based on 3.2 million monthly observations from 77,150 bonds from two transaction and three dealer-quote databases over the period from 1973 to 2008. Bond momentum profits are significant in the second half of the sample period, 1991 to 2008, and amount to 64 basis points per month. Momentum strategies are only profitable among non-investment grade bonds, where they yield 190 basis points per month. Similar to recent findings in equities, profits disappear after removing the worst-rated bonds -- about 8% of all observations -- but contrary to equities, bond momentum profits derive primarily from winners. However, losers are more actively traded than winners, giving them a greater share in momentum profitability when using trade-based data. Bond momentum is equally profitable in quote- and trade-based data, hence illiquidity is unlikely to explain it. Lack of information and transparency is also an unlikely explanation since momentum profits have increased in recent years, after the introduction of the TRACE reporting system.

Keywords: Bond Marke, Price Momentum, Credit Risk

JEL Classification: G10, G12, G14

Suggested Citation

Jostova, Gergana and Nikolova, Stanislava (Stas) and Philipov, Alexander and Stahel, Christof W., Momentum in Corporate Bond Returns (September 26, 2010). Available at SSRN: https://ssrn.com/abstract=1619930 or http://dx.doi.org/10.2139/ssrn.1619930

Gergana Jostova (Contact Author)

George Washington University - Department of Finance ( email )

2201 G St NW
Funger Hall, Suite 501
Washington, DC 20052
United States
202-994-7478 (Phone)

HOME PAGE: http://home.gwu.edu/~jostova

Stanislava (Stas) Nikolova

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588-0490
United States
402-472-6049 (Phone)

Alexander Philipov

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~aphilipo

Christof W. Stahel

Independent ( email )

No Address Available

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