Corporate Bond Portfolios and Asset-Specific Information

65 Pages Posted: 19 Dec 2016 Last revised: 25 Jun 2019

See all articles by Maximilian Bredendiek

Maximilian Bredendiek

Vienna Graduate School of Finance (VGSF)

Giorgio Ottonello

Nova School of Business and Economics

Rossen I. Valkanov

University of California, San Diego (UCSD) - Rady School of Management

Date Written: June 24, 2019

Abstract

We estimate corporate bond portfolios using numerous asset-specific characteristics. Our portfolio weights accommodate a large cross-section and allow for a flexible management of turnover and liquidity. A portfolio tilted toward higher maturity, credit risk, coupon, momentum, and size outperforms passive benchmarks after transaction costs. The gains are economically large and hold out of sample. Three reasons explain the performance. First, conditioning jointly on the characteristics optimally trades them off against each other. Second, the estimated weights use conditional information more efficiently than active funds. Finally, the portfolio returns forecast macroeconomic activity, indicating that our weights capture changes in investment opportunities.

Keywords: Corporate Bonds; Empirical Portfolio Choice; Characteristics

JEL Classification: G11, G12, C58, C13

Suggested Citation

Bredendiek, Maximilian and Ottonello, Giorgio and Valkanov, Rossen, Corporate Bond Portfolios and Asset-Specific Information (June 24, 2019). Available at SSRN: https://ssrn.com/abstract=2886825 or http://dx.doi.org/10.2139/ssrn.2886825

Maximilian Bredendiek

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Building D4, 4th Floor
Vienna, 1020
Austria

HOME PAGE: http://www.vgsf.ac.at

Giorgio Ottonello (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

HOME PAGE: http://https://sites.google.com/view/gi8nello

Rossen Valkanov

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
858-534-0898 (Phone)

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