Residual Equity Momentum Spillover in Global Corporate Bond Markets

Abstract

I present an improved equity momentum measure for corporate bonds and study the Euro denominated global investment grade corporate bond market between 2000 and 2016. I document economically meaningful and statistically significant corporate bond return predictability. In contrast to the widely used total equity return, momentum as measured by the residual (idiosyncratic) equity return appears to further enhance risk-adjusted performance of corporate bond investors. Additional support for this conjecture is obtained from tests for various asset pricing factors and transaction costs, as exposure to these risk factors cannot explain this abnormal pattern in returns.

Keywords: residual equity momentum, spillover, corporate bonds, anomalies, factor investing, risk premium

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