Are Capital Market Anomalies Common to Equity and Corporate Bond Markets?

52 Pages Posted: 4 Aug 2015

See all articles by Tarun Chordia

Tarun Chordia

Emory University - Department of Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Yoshio Nozawa

Hong Kong University of Science and Technology

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Qing Tong

Shanghai LiLi Technology Co.,Ltd.

Date Written: June 2, 2015

Abstract

We investigate whether corporate bond returns are related to commonly used predictors of stock returns. Using a comprehensive sample of U.S. corporate bonds from 1973 to 2011, we find that size, equity momentum, lagged equity returns, profitability, and idiosyncratic volatility forecast bond returns, but other variables such as accruals, asset growth, SUE, and net issues do not. The economic significance of the predictability is higher for junk bonds than it is for investment-grade bonds. For example, we find monthly returns to long-short portfolio sorted on past-month equity returns to be 0.71% per month for the sample of junk bonds and 0.24% for the sample of investment grade bonds. However, after accounting for trading frictions, only two variables (size and profitability) continue to consistently yield positive average returns.

Suggested Citation

Chordia, Tarun and Goyal, Amit and Nozawa, Yoshio and Subrahmanyam, Avanidhar and Tong, Qing, Are Capital Market Anomalies Common to Equity and Corporate Bond Markets? (June 2, 2015). Available at SSRN: https://ssrn.com/abstract=2638390 or http://dx.doi.org/10.2139/ssrn.2638390

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Amit Goyal (Contact Author)

University of Lausanne ( email )

Batiment Extranef 226
Lausanne, Vaud CH-1015
Switzerland
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/agoyal/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Yoshio Nozawa

Hong Kong University of Science and Technology ( email )

Clearwater Bay Road
Sai Kun, NT
Hong Kong

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Qing Tong

Shanghai LiLi Technology Co.,Ltd. ( email )

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