Extending Fama-French Factors to Corporate Bond Markets

Posted: 18 Jan 2016 Last revised: 4 Oct 2019

See all articles by Demir Bektic

Demir Bektic

Deka Investment GmbH; Darmstadt University of Technology; IQ-KAP; International University of Monaco

Josef-Stefan Wenzler

Deka Investment GmbH

Michael Wegener

Deka Investment GmbH

Dirk Schiereck

Darmstadt University of Technology

Timo Spielmann

Deka Investment GmbH

Date Written: February 1, 2017

Abstract

The explanatory power of size, value, profitability and investment has been extensively studied for equity markets. Yet, the relevance of these factors in global credit markets is less explored although equities and bonds should be related according to structural credit risk models. We investigate the impact of the four Fama-French factors in the U.S. and European credit space. While all factors exhibit economically and statistically significant excess returns in the U.S. high yield market, we find mixed evidence for U.S. and European investment grade markets. Nevertheless, we show that investable multi-factor portfolios outperform the corresponding corporate bond benchmarks on a risk-adjusted basis. Finally, our results highlight the impact of company level characteristics on the joint return dynamics of equities and corporate bonds.

Keywords: corporate bonds, risk premia, factors, size, value, profitability, investment

JEL Classification: G11, G12, G14

Suggested Citation

Bektic, Demir and Wenzler, Josef-Stefan and Wegener, Michael and Schiereck, Dirk and Spielmann, Timo, Extending Fama-French Factors to Corporate Bond Markets (February 1, 2017). Journal of Portfolio Management, 45 (3), 141-158, 2019, https://jpm.pm-research.com/content/45/3/141. Available at SSRN: https://ssrn.com/abstract=2715727 or http://dx.doi.org/10.2139/ssrn.2715727

Demir Bektic (Contact Author)

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Darmstadt University of Technology ( email )

Universitaets- und Landesbibliothek Darmstadt
Magdalenenstrasse 8
Darmstadt, Hesse D-64289
Germany

IQ-KAP ( email )

Frankfurt am Main
Germany

International University of Monaco ( email )

2 Av Prince Hereditaire Albert
Stade Louis II/B
Monaco, Monaco MC-98000
United States

Josef-Stefan Wenzler

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Michael Wegener

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Dirk Schiereck

Darmstadt University of Technology ( email )

Universitaets- und Landesbibliothek Darmstadt
Magdalenenstrasse 8
Darmstadt, Hesse D-64289
Germany

Timo Spielmann

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

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