The Low Beta Anomaly: A Corporate Bond Investor's Perspective

1 Pages Posted: 2 May 2017 Last revised: 19 Oct 2018

See all articles by Demir Bektic

Demir Bektic

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

Date Written: March 1, 2018

Abstract

The low beta anomaly is well documented for equity markets. However, the existence of such a factor in corporate bond markets is less explored. I find that European corporate bonds of firms with a low equity beta have higher risk-adjusted returns, on average, than European corporate bonds of firms with a high equity beta. The results are economically and statistically significant as low beta credit portfolios improve the Sharpe ratio up to 30%. Moreover, even after accounting for transaction costs and by considering long-only portfolios, the risk-adjusted return remains substantial indicating practical implementability of the strategy for corporate bond investors.

Keywords: corporate bonds, risk premium, factor investing, low beta, anomalies

JEL Classification: F3, G1, G11, G12, G14

Suggested Citation

Bektic, Demir, The Low Beta Anomaly: A Corporate Bond Investor's Perspective (March 1, 2018). Review of Financial Economics 36 (4), 300-306, 2018. Available at SSRN: https://ssrn.com/abstract=2961840

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

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