Long-Term Reversals in the Corporate Bond Market
Journal of Financial Economics (JFE), Forthcoming
72 Pages Posted: 17 Mar 2019 Last revised: 24 Dec 2019
Date Written: March 1, 2019
Long-term reversals in corporate bonds are economically and statistically significant in a comprehensive sample spanning the period 1977 to 2017. Such reversals are stronger for bonds with high credit risk and more binding regulatory, capital, and funding liquidity constraints. Bond long-term reversal is not a manifestation of the equity counterpart and is mainly driven by long-term losers. A long-term reversal factor carries a sizable premium and is not explained by long-established equity and bond market factors. Thus, past returns capture investors' ex-ante risk assessment and the degree of institutional constraints they face, so that losing bonds command higher expected returns.
Keywords: Corporate bonds, long-term reversal
JEL Classification: G10, G11, C13
Suggested Citation: Suggested Citation