Momentum in the European Corporate Bond Market: The Role of Bond-Specific Returns
Posted: 24 Sep 2015 Last revised: 4 Aug 2018
Date Written: September 4, 2017
This paper analyzes momentum patterns in the European corporate bond market. We study a broad sample of Euro-denominated investment grade and noninvestment grade bonds covering the period January 2004 to October 2016. Our empirical findings reveal that momentum is mainly concentrated among noninvestment grade bonds. Furthermore, the composition of the momentum portfolios varies over time and is related to bond characteristics. Taking this into account, we apply characteristics-based adjustments in context with performance measurement and find momentum profits to remain robust. Most importantly, bond-specific return components seem to drive momentum patterns, indicating gradual information diffusion in bond prices.
Keywords: Fixed income; corporate bonds; momentum; time-varying performance; credit cycles; information diffusion
JEL Classification: G11, G12, G14
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