Long-Term Reversals in the Corporate Bond Market
65 Pages Posted: 17 Mar 2019
Date Written: March 2019
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: Suggested Citation