Cross-Sectional Predictability of Corporate Bond Returns

68 Pages Posted: 21 Nov 2016 Last revised: 8 Feb 2019

See all articles by Hai Lin

Hai Lin

Victoria University of Wellington - School of Economics & Finance

Chunchi Wu

SUNY at Buffalo - School of Management

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Date Written: January 17, 2019

Abstract

While there are hundreds of cross-sectional predictors in the equity market, whether corporate
bonds are predictable in the cross section is an open question. This paper proposes to
use trend signals in returns as predictors, and to make full use of short-, intermediate- and
long-term trends simultaneously to predict future returns. We uncover the first strong evidence
that there is statistically significant and economically important predictability in the cross section
of corporate bond returns. The predictability is robust to various controls, and presents an
anomaly that challenges existing rational pricing models in a similar manner as equity anomalies.

Keywords: trend signals; moving averages; cross-sectional predictability; corporate bond returns.

JEL Classification: G12; G14

Suggested Citation

Lin, Hai and Wu, Chunchi and Zhou, Guofu, Cross-Sectional Predictability of Corporate Bond Returns (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=2872382 or http://dx.doi.org/10.2139/ssrn.2872382

Hai Lin (Contact Author)

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

Chunchi Wu

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

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