Long-Term Reversals in the Corporate Bond Market

65 Pages Posted: 17 Mar 2019

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Quan Wen

Georgetown University - Department of Finance

Date Written: March 2019

Abstract

Long-term reversals in corporate bond returns are economically and statistically significant in a comprehensive sample spanning the period 1977 to 2017. Such reversals are stronger in the high credit risk sector. Bond long-term reversal is not a manifestation of the equity counterpart and is mainly driven by long-term losers. A return-based long-term reversal factor carries a sizable premium and provides strong explanatory power for returns of industry/size/rating/maturity-sorted portfolios of corporate bonds. Our evidence accords with the hypothesis that past returns capture investors' ex-ante risk assessment, so that losing bonds command higher expected returns.

Keywords: Corporate bonds, long-term reversal

JEL Classification: G10, G11, C13

Suggested Citation

Bali, Turan G. and Subrahmanyam, Avanidhar and Wen, Quan, Long-Term Reversals in the Corporate Bond Market (March 2019). Available at SSRN: https://ssrn.com/abstract=2978861 or http://dx.doi.org/10.2139/ssrn.2978861

Turan G. Bali (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: http://faculty.msb.edu/tgb27/

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Quan Wen

Georgetown University - Department of Finance ( email )

37th and O Street, NW
Washington D.C., DC 20057
United States

HOME PAGE: http://faculty.georgetown.edu/qw50

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