Exploiting Uncertainty with Market Timing in Corporate Bond Markets

Journal of Asset Management 19 (2), 79-92, 2018

1 Pages Posted: 24 Jul 2017 Last revised: 22 Aug 2018

See all articles by Demir Bektic

Demir Bektic

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

Tobias Regele

Allianz SE - Allianz Global Investors Europe

Date Written: July 1, 2017

Abstract

The purpose of this article is to show the usefulness of technical analysis in credit markets. We document that an application of a simple moving average timing strategy to U.S. high yield and U.S. investment grade corporate bond portfolios sorted by option-adjusted spread generates investment timing portfolios that substantially outperform the corresponding benchmark. For portfolios with high uncertainty, as measured by the option-adjusted spread, the abnormal returns generate economically and statistically significant returns relative to the capital asset pricing model (CAPM), the Carhart 4-factor model and additionally the bond factor model from Asness et al. (2013). Our results remain robust to different moving average formation periods, transaction costs, long-short portfolio construction techniques and alternative definitions of information uncertainty.

Keywords: Market efficiency, market timing, predictability, behavioral finance, technical analysis

JEL Classification: G11, G12, G14

Suggested Citation

Bektic, Demir and Regele, Tobias, Exploiting Uncertainty with Market Timing in Corporate Bond Markets (July 1, 2017). Journal of Asset Management 19 (2), 79-92, 2018, Available at SSRN: https://ssrn.com/abstract=3005662 or http://dx.doi.org/10.2139/ssrn.3005662

Demir Bektic (Contact Author)

Deka Investment GmbH ( email )

Mainzer Landstrasse 16
Frankfurt am Main, 60325
Germany

Technical University of Darmstadt ( email )

Universitaets- und Landesbibliothek Darmstadt
Magdalenenstrasse 8
Darmstadt, Hesse D-64289
Germany

International University of Monaco ( email )

2 Av Prince Hereditaire Albert
Stade Louis II/B
Monaco, Monaco MC-98000
United States

IQ-KAP ( email )

Frankfurt am Main
Germany

Tobias Regele

Allianz SE - Allianz Global Investors Europe

Bockenheimer Landstrasse 42-44
Frankfurt am Main, 60323
Germany

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